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Country Profile 2005

ThailandThis Country Profile is a reference work, analysing thecountry�s history, politics, infrastructure and economy. It isrevised and updated annually. The Economist IntelligenceUnit�s Country Reports analyse current trends and provide atwo-year forecast.

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ISSN 1356-4161

Symbols for tables�n/a� means not available; �� means not applicable

Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

BANGKOK

Ubon RatchataniNakhonRatchasima

Chon BuriRatcha Buri

Yai

Khon Kaen

Chieng Mai

ga

Petchaburi

Kanchana BuriNakhon Pathom

Lopburi

Ayutthaya

Krabi

BANGKOK

Ubon RatchataniNakhonRatchasima

Songkhla

Chon BuriRatcha Buri

Ban Hat Yai

Khon Kaen

Chiang Mai

Nakhon SawanNakhon Sawan

Yala

Phuket

Khuraburi

Ranong

Phangnga

Ban Kantang

Trang Phatthalung

Surat Thani

Chumphon

Isthmusof Kra

Isthmusof Kra

Ko Samui

Ko Phangan

Ko Chang

Ko KutPrachuap Khiri Khan

Hua Hin

SurinSurin

Phetchabun KalasinPhetchabun

Lamphun

LampangPhrae

Nan

Chiang Rai

Lamphun

LampangPhrae

Phitsanulok

Roi Et

Phitsanulok

UttaraditUttaraditNong Khai

Nakhon PhanomNakhon Phanom

MukdahanMukdahan

Sakon NakonUdon Thani

Roi Et

Kalasin

TakTakMae Sot

Nan

Phayao

Siri KitRes.

PhumiphonRes.

SrinakarinRes.

Nam ChonRes.

ao LaemRes.

Khao LaemRes.

Ubol Ratana Res. Lam Pao Res.

Chiang Rai

SaraburiSaraburi

Chanthaburi

Trat

Chanthaburi

Samut Prakan

Nonthaburi

Samut PrakanSamutSakhon

Trat

SisaketSisaket

AranyaprathetAranyaprathet

PetchaburiPattaya

Rayong

Kanchana BuriNakhon Pathom

Suphan BuriSuphan Buri

Nonthaburi

Lopburi

Ayutthaya

Krabi

Nakhon Si Thammarat

Narathiwat

PaPattani

THAILAND

MYANMAR LAOS

CAMBODIA

VIETNAM

MALAYSIA

VIETNAM

GULF OF THAILAND

ANDAMAN SEA

Mun R.

PingR.

YamR.

Mekon g R.

Mekong R.Chi R.

0 km 50 100 150 200

0 miles 50 100

' The Economist Intelligence Unit Limited 2005June 2005

Main railway

Main road

International boundary

Main airport

Capital

Major town

Other town

Country Profile 2005 www.eiu.com © The Economist Intelligence Unit Limited 2005

Comparative economic indicators, 2004

Gross domestic product(US$ bn)

Sources: Economist Intelligence Unit estimates; national sources.

0 100 200 300 400 500 600 700

Vietnam

Philippines

Singapore

Malaysia

Thailand

Hong Kong

Indonesia

Taiwan

South Korea

0 5 10 15 20 25 30

Vietnam

Philippines

Indonesia

Thailand

Malaysia

Taiwan

South Korea

Hong Kong

Singapore

-1 0 1 2 3 4 5 6 7 8

Hong Kong

Malaysia

Taiwan

Singapore

Thailand

South Korea

Philippines

Indonesia

Vietnam

0 2 4 6 8 10

South Korea

Indonesia

Taiwan

Thailand

Philippines

Malaysia

Vietnam

Hong Kong

Singapore

Gross domestic product(% change, year on year)


Consumer prices(% change, year on year)


Gross domestic product per head(US$ �000)


Thailand 1

© The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

Contents

Thailand

3 Basic data

4 Politics4 Political background4 Recent political developments8 Constitution, institutions and administration10 Political forces13 International relations and defence

16 Resources and infrastructure16 Population17 Education18 Health20 Natural resources and the environment22 Transport, communications and the Internet25 Energy provision

26 The economy26 Economic structure28 Economic policy31 Economic performance34 Regional trends

34 Economic sectors34 Agriculture37 Mining and semi-processing37 Manufacturing40 Construction40 Financial services43 Other services

44 The external sector44 Trade in goods46 Invisibles and the current account47 Capital flows and foreign debt48 Foreign reserves and the exchange rate

49 Regional overview49 Membership of organisations

52 Appendices52 Sources of information53 Reference tables53 Population53 Labour force53 Transport statistics54 Central government finances

2 Thailand


54 Interest rates54 Money supply55 Gross domestic product55 Nominal gross domestic product by expenditure56 Real gross domestic product by expenditure56 Gross domestic product by sector56 Prices and earnings57 Crop production57 Mineral production57 Manufacturing production58 Construction statistics58 Banking statistics58 Stockmarket indicators58 Principal exports and imports59 Main trading partners59 Balance of payments, IMF series60 External debt, World Bank series60 Foreign reserves60 Exchange rates

Thailand 3


Thailand

Basic data

514,000 sq km, of which 38% cultivated and 20% forest

65.24m (end-2004)

Population in m (local administration departments�December 2000)

Bangkok (Metropolitan; capital) 5.68 Chiang Mai 1.59Nakhon Ratchasima 2.54 Nakorn Srithammarat 1.52Ubon Ratchathani 1.77 Udon Thani 1.52

12 other Thai provinces have populations in excess of 1m

Subtropical

Hottest month, April, 35-40°C; coldest month, December, 20-31°C; driestmonths, January-March, no rain; wettest month in central and northernregions is September, with 305 mm average rainfall, and in the south isDecember, with 400 mm average rainfall

Thai

The metric system is officially used. For local dealings, traditional units areused:

1 pikul=60 kg 1 wah=2 metres1 rai=1,600 sq metres 1 tang=20 litres1 tical or baht (jeweller�s measure)=15.24 grams

1 baht (Bt)=100 satang. Average exchange rates in 2004: Bt40.22:US$1; Bt73.8:£1;average exchange rates on May 25th 2005: Bt40:US$1; Bt73.3:£1

Seven hours ahead of GMT

October 1st-September 30th

January 1st; March 5th (Makhabuja�regulated by Buddhist calendar); April 6th(Chakri Day); April 13th-15th (Songkran Festival); May 5th (Coronation Day);June 2nd (Visakhabuja); July 31st (Asalhabuja); August 1st (beginning ofBuddhist Lent); August 12th (Mother�s Day�the queen�s birthday); October 23rd(Chulalongkorn Day); December 5th (Father�s Day�the king�s birthday);December 10th (Constitution Day); December 31st (New Year�s Eve)

Total area

Population

Main provinces

Climate

Weather in Bangkok(altitude 2 metres)

Language

Weights and measures

Currency

Time

Fiscal year

Public holidays 2004

4 Thailand


Politics

Thailand is a parliamentary democracy with a constitutional monarchy. Therevered king, Bhumibol Adulyadej, has ensured a degree of political continuity,although there have been 17 military coups (the last in 1991) since the absolutemonarchy was abolished in 1932. Civilian government was restored in 1973, butover the following three decades administrations tended to be short-lived andunstable. This changed in January 2001, when the newly formed Thai Rak Thai(TRT) party, under the leadership of a former telecommunications tycoon, ThaksinShinawatra, won a resounding victory in the general election; Thaksin�sgovernment subsequently became the first administration to complete a four-yearterm. The TRT gained an even more impressive victory in the 2005 election,enabling it to form an unprecedented single-party government.

Political background

The first unified Thai kingdom emerged in the 13th century at Sukhothai in thenorthern part of the Chao Phraya river basin. Subsequently the Thai state(called Siam until 1939) shifted down to the city of Ayutthaya, from which itshegemony extended southwards to Malaya and east into the Khmer empire.The capital was moved to its present site in Bangkok when the Burmese sackedAyutthaya in 1767. Political conflict between the established monarchical orderand new groups in society led to the establishment in 1932 of a constitutionalmonarchy, which still exists. Thailand is the only country in South-east Asia notto have been colonised by a European power.

From the establishment of the constitutional monarchy until 1973, the countrywas ruled by a succession of military governments. Only in 1973 was the last ofthe military strongmen removed in a student-led uprising. Subsequent civiliangovernments, weakened by rivalry, were usually short-lived and almostinvariably ended in military takeovers, mostly bloodless. Throughout thisturbulent period the civilian bureaucracy and the king lent an element ofstability to the system. During the second world war the Thai governmentinitially formed an alliance with Japan, but switched its allegiance to theWestern powers mid-way through the war. It has subsequently remained aclose ally of the West.

Recent political developments

After 1973 socio-economic pressures that built up during the course of rapideconomic growth changed this general pattern, and military involvement ingovernment was limited to power-sharing with civilians. However, factionalismand corruption persisted, and eventually led to another military coup by theNational Peacekeeping Council (NPC) in February 1991. Fresh elections wereheld in March 1992, and were narrowly won by a coalition of parties that hadbacked the NPC. When this coalition could not agree on a candidate forprime minister, the NPC installed the retiring army chief, General Suchinda

Thaksin forms a single-partygovernment

A unified kingdom

Military governments rulefrom 1932 to 1973

The last military coup tookplace in 1991

Thailand 5


Kraprayoon. Public opposition to the appointment of an unelected militaryman ran deep, and thousands turned out in urban centres to protest. In MaySuchinda�s allies in the army and the police resorted to violence in an attemptto suppress the protests in the capital, Bangkok, resulting in many deaths.

As a result of the king�s intervention, Suchinda was forced to step down and afresh election was held in September 1992, resulting in the formation of acoalition government of �pro-democracy� parties under the Democrat Party(DP) leader, Chuan Leekpai. The Chuan administration was severely weakenedby policy indecision and constant faction-fighting between the five coalitionpartners. Corruption charges over a land reform programme forced Chuan todissolve the House of Representatives (the lower house) in May 1995. The DPlost the subsequent election to the Chart Thai (CT) party under BanharnSilapa-archa. However, Banharn, a veteran rural power broker with a fortunemade from public road concessions, was never a popular choice. In September1996 he was forced to call an election when the six-party coalition split on theeve of a censure debate. The New Aspiration Party (NAP), led by a formergeneral, Chavalit Yongchaiyudh, narrowly defeated Chuan�s Democrats in theNovember 1996 election. Chavalit assembled another six-party coalition, but hewas subsequently blamed for failing to prevent the collapse of the baht in July1997 and for appearing indecisive in the face of the ensuing economic crisis. InNovember 1997 Chavalit was forced to step down.

Chuan became prime minister for the second time in December 1997, replacingChavalit and the NAP, with a shaky line-up of six parties in coalition and 12defectors from a seventh party, Prachakorn Thai (PT). The ruling coalitionincreased its 20-seat majority in October 1998 by including Chart Pattana (CP),which controlled 51 seats in the lower house. Despite persistent infightingamong the coalition partners, there was progress on political and legislativereform, but by 2000 the public was becoming weary of the slow recovery fromthe economic crisis and impatient with the government, which was seen asrelatively uncorrupt but lacking in dynamism.

Thaksin and his TRT party won a historic victory in January 2001 in the firstgeneral election under the new electoral laws. The TRT, formed less than twoyears earlier, mounted an aggressive populist campaign that captured thepublic�s mood and won 248 seats in the 500-seat House of Representatives. Informing the TRT, Thaksin brought together many members of parliament (MPs)who were disillusioned with their original parties but who had cultivatedpolitical strongholds in their constituencies. The DP, the country�s oldestpolitical party and the TRT�s nearest rival, won only 128 seats. The medium-sized parties�NAP, CT and CP�garnered only one-half of the seats that theyhad expected to win. The election was the first held under the auspices of thereformist 1997 constitution, which seems to discriminate against smaller parties.The small and medium-sized Thai parties are traditionally region-specific, andthus found it difficult to find the 100 candidates needed to satisfy the require-ments of the party list. (Parties need to win at least 5% of the national vote tobe allocated a party-list MP.)

The TRT claims a resoundingvictory

Unstable coalitions becomethe norm

The Democrats are givenanother chance

6 Thailand


The Election Commission (EC) played an active role in attempting to reducevote-buying and other fraudulent activities, and the 2001 election markedconsiderable progress in Thailand�s move towards more transparent democraticprocesses. This election also offered the Thai public a policy agenda, ratherthan simply �personalities�, for the first time.

By completing a full four-year term in office, Thaksin surpassed the achieve-ments of all of his predecessors. Despite this increased political stability,Thaksin�s first term in office was controversial. His first six months as primeminister were overshadowed by the possibility that he would be removed fromhis post: he faced charges of having made a false asset statement in 1997, whilepreviously a government minister. In August 2001 the Constitution Courtacquitted him, but with only eight out of 15 judges voting in his favour. Despitethis initial uncertainty, the Thaksin administration progressively consolidated itshold on power, with covert efforts made to weaken the institutions empoweredunder the 1997 constitution to provide a robust checks-and-balancesmechanism. Non-governmental organisations (NGOs) also criticised theThaksin administration for its poor record in the human rights area, withThaksin�s �war on drugs� in 2003 resulting in the deaths of more than2,000 people.

One of the most serious problems that emerged during Thaksin�s first term inoffice was the resumption of violence in the Muslim-dominated southernmostprovinces, which have experienced sporadic unrest for decades. As yet it is stillunclear who is perpetrating the violence, but the government blames Muslimseparatists. The population in the affected region is largely of Malay origin andspeaks a Malay-based dialect. The region is poor, unemployment is high, andthere is deep resentment of centralised rule from Buddhist-dominated Bangkok.Between early 2004 and April 2005 more than 700 people were killed in theregion. Thaksin�s hardline approach to the insurgency has been blamed forfanning the flames, and the security force�s heavy-handed tactics have beenstrongly criticised by a number of foreign governments and human rightsgroups. The most deadly incidents occurred in April 2004, when 34 peoplewere killed in a local mosque in Pattani following a shoot-out between securityforces and militants, and in October 2004, when a demonstration resulted inthe deaths of 85 people (78 of whom died, mostly from suffocation, while beingtransported to a police station). In April 2005 Thaksin shifted his stance andpledged to adopt a softer approach to efforts to bring peace and unity to thetroubled region.

In a generally free and fair election in February 2005, the TRT recorded anotherresounding victory, winning 377 seats in the House of Representatives.Although the election outcome was widely expected, the margin of victory wasin doubt. In the end the TRT fell short of its ambitious target of 400 seats, aresult that would have prevented the parliamentary opposition from censuringgovernment ministers, but its margin of victory was more than sufficient toenable it to form a single-party government, the first in modern Thailand. TheTRT maintained its dominance in all regions except the south. The south haslong been a stronghold of the Democrat Party (DP), which won 52 of the 54

Thaksin completes acontroversial full term in office

The TRT wins an even biggermajority in the 2005 election

Violence in the southcontinues unabated

Thailand 7


seats available. The DP fared poorly in every other region, however, and won atotal of only 70 of the 400 constituency seats contested. Only two other partiesare represented in parliament: Chart Thai (CT), which was part of the TRT-led coalition in the previous parliamentary term, and the recently formedMahachon. CT has 25 seats (18 constituency and seven party-list), andMahachon has only two (both of which are constituency seats).

Important recent events

January-February 2001

In the general election the Thai Rak Thai (TRT) party scores an overwhelming victoryover the incumbent Democrat Party (DP). Thaksin Shinawatra, the leader of the TRT,becomes prime minister at the head of a three-party coalition.

August 2001

Thaksin is acquitted by the Constitution Court of making a false asset statementin 1997.

January 2002

The New Aspiration Party (NAP) votes to merge with the TRT, and the TRT endorsesits decision.

October 2002

The government enacts bureaucratic reform bills in the first overhaul of thebureaucracy for decades.

January 2003

Anti-Thai riots in Cambodia spark an angry response from the Thaksin government.Diplomatic relations are downgraded until the Cambodian government payscompensation for the damage done to the Thai embassy.

February 2003

Thaksin launches his controversial anti-drug campaign. Over 2,000 people are deadafter three months, but although the policy is criticised internationally, the Thaipublic is supportive.

April 2003

A veteran politician, Banyat Bantadan, is elected as leader of the DP as ChuanLeekpai retires.

December 2003

Thaksin declares victory in the anti-drug campaign, but King Bhumibol Adulyadej isparticularly critical of the high death toll and the lack of detailed facts surroundingthe deaths of individuals, most of whom were civilians, believed to have beeninvolved in the drug trade.

January 2004

Violence erupts in the Muslim-dominated southernmost provinces. Martial law isimposed, and the defence minister, Thammarak Isarangura na Ayudhaya, and theinterior minister, Wanmuhamadnoor Matha, are both replaced for failing to containthe troubles.

8 Thailand


April 2004

In the worst outbreak of violence in the south so far, clashes between Thai securityforces and armed militants in a number of districts across three provinces, Pattani,Yala and Songhkla, result in the deaths of more than 100 militants and a handful ofsoldiers.

August 2004

The DP�s candidate, Apirak Kosayodhin, secures an impressive victory in the electionfor the post of governor of the capital, Bangkok. The TRT does not field a candidate.The Chart Pattana (CP) party opts to dissolve and merge with the TRT.

October 2004

A demonstration in Narathiwat province, in southern Thailand, results in the deathsof 85 people in an incident that provokes domestic and international outrage.

January 2005

During the weeks following the December 26th 2004 tsunami disaster, Thaksinreiterates that the country does not need international financial aid. His leadership inthe immediate aftermath of the tsunami receives widespread praise.

February 2005

The TRT records a resounding victory in the general election and forms a single-party government.

March 2005

The DP�s general assembly unanimously votes for Abhisit Vejjajiva as the party�snew leader.

April 2005

In an apparent spread of the violence in the south to areas outside the main threeaffected provinces, bombs explode in the airport at Hat Yai, Songkhla province, andat the city�s branch of a French supermarket chain. A third blast occurs outside ahotel shortly afterwards. Only two people are killed, but scores more are injured.

Constitution, institutions and administration

A new constitution, Thailand�s 16th since 1932, was approved in September1997. Its principal aims were to stamp out government corruption and to ensurea corruption-free and transparent electoral process. Under the new constitution,MPs must resign their parliamentary seats to take up cabinet posts, ministersare made to declare their assets before and after taking office, and the primeminister must be an elected MP. Candidates must now stand for election to the200-member Senate (the upper house) instead of being appointed.

The constitution stipulates 500 members of the lower house, of whom 400 aredirectly elected in single-seat constituencies nationwide and the remaining 100(called party-list MPs) are apportioned to each political party in direct relationto the proportion of votes they receive. Any party receiving less than 5% of thepopular vote loses its right to any party-list MPs. The aim is to ensure that MPsdirectly elected in constituencies concentrate on constituency and legislativework. Only MPs on the party list may be selected to join the cabinet.

A new constitution is enacted

Thailand 9


The new constitution created 11 constitutionally independent bodies in a bid totry to limit the scope for graft in politics and to create a democratic system ofchecks and balances. One of these bodies, the Election Commission (EC), wasestablished to monitor elections to both the upper and lower houses. In theMarch 2000 Senate election, the EC ordered a rerun of the vote in nearly one-half of the constituencies, but the law was subsequently amended to preventthis long-drawn-out process. Despite this change, there were numerous rerunsof votes after the January 2001 poll, and 100 politicians were accused of fraud.The EC subsequently appeared to have lost its nerve, and only a handful ofMPs were disqualified. The main reason for this leniency seems to be that theelection law requires that the disqualification of alleged cheats by thecommission be unanimous.

The EC�s reputation has not been the only one to suffer. The fact that Thaksinwas acquitted by the Constitution Court has raised questions about itsimpartiality, particularly as it was acting on a recommendation to prosecutefrom the National Counter Corruption Commission (NCCC). Thaksin, unsur-prisingly, has been heavily critical of the anti-graft agencies, and has attemptedto undermine their credibility. Since taking office, Thaksin has compromised theimpartiality of the agencies by appointing a number of his supporters to them.

The 1997 constitution reduced the size of the cabinet from 48 members to 36 ina bid to increase efficiency. However, the Thaksin government�s bureaucraticreform bills, enacted on October 3rd 2002, involved the creation of five newministries (making a total of 20) and 35 new departments. The new ministriescover: natural resources and the environment, tourism and sport, informationand communications technology, culture, and social development and humansecurity. The public debt office and the state enterprise department now comeunder the Ministry of Finance. The reforms appear to run contrary to thedecentralisation initiative outlined in the 1997 constitution and are insteadincreasing the power of the state sector. They were rushed through thelegislature, raising questions about adequate preparation and research, andabout the government�s numerical strength, which allows it to push throughcontroversial legislation without full debate.

Thailand is a unitary state, and the situation is unlikely to change significantly,despite efforts under the new constitution to reduce Bangkok�s authority.Following legal changes approved in early 1998, about 100 city and municipalcouncils were to get much of their revenue from sales and land taxes, insteadof relying solely on central government grants. Until now, only the BangkokMetropolitan Administration has had an adequate tax base. However, theThaksin administration has since declared its reluctance to increase statefunding of local administration organisations to 35% of the national budget by2006, as required by the new law. It claims that allocations to local governmentwould worsen budgetary constraints and that, although it recognises itsobligations to decentralise, the current priority is economic recovery.

The legal system is based on a civil-law system, with elements of common law.Thailand has not accepted the jurisdiction of the International Court of Justice.

Bureaucratic reform is enacted

The anti-graft agencies losecredibility

The central governmentremains powerful

10 Thailand


The judiciary is independent of the legislative and executive branches ofgovernment, and Supreme Court judges are appointed by the king.

Thailand�s respect for human and civil rights has progressively improved sincethe 1973-76 political upheavals. Civil liberties are for the first time explicitlyguaranteed under the new constitution. The lifting of a ban on the formation ofunions by employees of state-owned enterprises has improved the country�slabour rights. However, child labour remains a concern. Criticism of politicalparties, public figures and the government became increasingly widespreadunder the Chuan administration.

The private-sector media are not officially controlled, although they practisesome self-censorship, especially on issues related to the monarchy and nationalsecurity. The Thaksin administration is attempting to curtail their freedom.Although segments of the printed press have retained their independence, thebroadcasting media are now in effect under government control. Journalistshave revealed repeated government interference in news reporting. Thaksin�spowerful business connections enable him to threaten the withdrawal of vitaladvertising if the media become too critical.

The Thaksin government has also been criticised by both domestic andinternational NGOs for failing to respect human rights. Specifically, the extra-judicial killings during the anti-drug campaign in 2003, the treatment ofBurmese migrants and the militaristic response to the insurgency in the southof the country have been cited as examples of such abuse. The government�sbehaviour in these areas, however, has not been strongly condemned by thewider public.

Political forces

Parliamentary forces(no. of seats in House of Representatives won in Feb 2005 election)

Total Constituency Party lista

Thai Rak Thai (TRT) 377 310 67Democrat Party (DP) 96 70 26

Chart Thai (CT) 25 18 7Mahachon 2 2 0

a Elected by proportional representation.

Source: Election Commission.

During its first term in office, the TRT�s parliamentary strength was bolstered bymergers with a number of other parties. In June 2001 the small Seritham Partymerged with the TRT, giving the latter an additional 14 seats. In 2002 theNational Aspiration Party, which had won 35 seats in the 2001 election, mergedwith the TRT, and later, in 2004, the CP also dissolved and merged with theTRT, bringing in 31 MPs. Following the 2005 election, the TRT controlled 377seats in the lower house, enabling it to govern alone rather than merely beingthe dominant force in a government coalition as during the previous parlia-mentary term. As it now enjoys the support of more than one-half of themembers of the House of Representatives and the Senate combined (which

The government�s humanrights record is questionable

The TRT rapidly emerges asthe dominant political force

Thailand 11


contain 700 seats in total), the TRT government has the power to amend theconstitution, possibly further limiting the powers of independent institutions,such as the NCCC.

The DP is the largest party in opposition, and has traditionally been a force tocontend with when out of office. However, the size of the TRT�s majority in thelower house and Thaksin�s dominant and unifying role in the party mean thereis little current scope for effective opposition. Throughout 2002 the DP wasabsorbed with its own leadership contest as the party leader, Chuan Leekpai,announced his retirement in April 2003. Banyat Bantadan, a veteran politicianwith a strong support base in the south of the country, was elected as the newleader shortly afterwards. However, he proved unable to match the charismaand dynamism of Thaksin, and after leading his party to a dismal performancein the 2005 election, Banyat tendered his resignation as leader. In March 2005the party�s general assembly unanimously voted for Abhisit Vejjajiva as theparty�s new head. Abhisit only narrowly lost the 2003 leadership contest toBanyat, with many party members at the time either claiming that Abhisit wastoo young to take the helm or being influenced by the party�s former secretary-general, Sanan Kachornprasart, who backed Banyat strongly. Soon afterreceiving the party�s backing in March, Abhisit pledged to overhaul the DP, toenable it to shed its dour image and present itself as a more potent force tocounter the TRT.

There is a low rate of unionisation in Thailand, at only 2-5% of the workforce,compared with 10% in both Japan and South Korea. Civil servants are notallowed to become members of trade unions. The most vocal (and the onlyinfluential) labour unions are in state-owned enterprises, some of which arescheduled for partial privatisation. The unions have been criticised for a lack ofeffective leadership and an inability to keep pace with economic changes. Theyare not a cohesive group, as most unions represent only the workers ofindividual companies, and there are 1,063 unions in total.

Bhumibol Adulyadej, the revered king, is the ninth monarch of the 215-year-oldChakri dynasty. With the help of Queen Sirikit, he has spent much of the lasthalf-century restoring the monarchy from its low ebb in the wake of the 1932revolution. However, the king, who was born in 1927, has been undergoingtreatment for heart and other health problems since the late 1980s, and hisdesignated heir, Crown Prince Maha Vajiralongkorn, is considerably lesspopular than his father.

The king has become more outspoken on political matters in recent years, andin particular since the Thaksin administration took power. In his annualbirthday speeches, the king has shown subtle signs of displeasure at Thaksin�sarrogance and growing abuse of power. The public�s immense respect for theking makes the monarchy one of the few remaining institutions with thepower to unseat the powerful TRT government in the last resort.

The king is greatly revered

The DP becomes increasinglyineffectual

Unionisation remains low

12 Thailand


Main political figures

Thaksin Shinawatra

The current prime minister and founder of the Thai Rak Thai (TRT) party, Thaksinmade a personal fortune from government telecommunications concessions andwon respect for his business acumen. Thaksin�s previous political record was notimpressive. As deputy prime minister in Chavalit Yongchaiyudh�s government, hepromised to solve the traffic problems of the capital, Bangkok, in six months, butresigned shortly afterwards, having achieved nothing. He has continued to makepopulist promises since coming to power in January 2001, and has been criticised forfailing to consult the cabinet and for his inability to accept criticism. However, hisgovernment has implemented most of his policy promises, with the exception of thepledge to wipe out corruption. Since coming to power Thaksin has progressivelytightened his grip on the domestic polity, and has aspirations to becoming a regionalfigurehead.

Snoh Thienthong

Formerly a member of the New Aspiration Party, Snoh led a group that defected, andis now the TRT�s advisory committee chairman and a leading adviser to Thaksin.Snoh heads the Wang Nam Yen faction of the TRT. (The other prominent faction isled by Yaowapa Wongsawat, Thaksin�s sister.) Snoh is a provincial power-brokerbased in the north-east of the country. He is one of the few survivors of thepatriarchal type of politicians that dominated Thai politics from the 1980s to 2001,and has little sympathy for democratic ideals�he opposed the writing of thereformist 1997 constitution. Although he has the money, seniority and experience tocontinue to wield power under the Thaksin administration, he appears to have lostsome of his direct influence over TRT party affairs. Snoh made no secret of hisdisappointment at Thaksin�s selection of appointees to key ministerial postsfollowing the 2005 election. In particular, he hit out at Thaksin�s offer to make himhonorary chief whip; he served as chief government whip during the previousparliamentary term.

Abhisit Vejjajiva

After narrowly losing the Democrat Party (DP) leadership election to BanyatBantadan in April 2003, Abhisit finally took control of the party in March 2005following Banyat�s resignation. He differs from the old school of Thai politicians inthat he is Oxford-educated, young, and professes a fondness for rock groups. Hedescribes himself as a professional politician, and believes that informationtechnology is a key force for political reform (in the sense that the more peopleknow, the less politicians can hide from them). Abhisit probably represents the DP�sbest chance of dislodging Thaksin from power.

International relations and defenceMilitary forces, 2004Personnel (no.) 514,200 Active 314,200 Reserves 200,000

Source: International Institute for Strategic Studies, The Military Balance, 2004/05.

Thailand 13


The influence of the armed forces in Thai political affairs has decreaseddramatically since their unpopular seizure of power in 1992. The newconstitution has made them more accountable, and the cabinet must nowapprove all internal service budgets. However, a plan to make all three servicescome under the command of a civilian leader was scrapped after strongopposition from senior officers. Officially, the three services still report to thesupreme commander, but in practice the army chief has influence over allservices because of the numerical dominance of the army.

Chuan appointed General Surayud Chulanont chief of the army in 1998. Thiswas the first time that an army chief was not chosen from among the top fivesenior officers. Chuan believed that Surayud was the right man to carry outmuch-needed reform of the services. Surayud progressed steadily towardsmeeting these objectives, linking the restructuring with wider efforts to create aprofessional, non-political defence force. The number of volunteers for thearmy started to rise, and it was intended that future promotions be made onthe basis of ability rather than connections. However, Surayud�s reforming zealand, in particular, his opposition to close ties with the Burmese junta, broughthim into conflict with the Thaksin administration, and in 2002 Thaksinorchestrated Surayud�s �promotion� to the largely ceremonial role ofcommander-in-chief. In the controversial annual military reshuffle in 2002,which involved an unhealthy degree of political interference, General ChaisithShinawatra, Thaksin�s cousin and a former adviser to the supreme commander,was elevated to the position of army assistant commander. He later becamearmy chief, and in the annual 2004 military reshuffle became the newsupreme commander, with General Pravit Wongsuwan being appointedcommander-in-chief.

Budget constraints mean that most artillery and naval craft are now sourcedcheaply from China, mixed with US supplies from the 1960s and earlier. Thetask of re-equipping the armed forces has absorbed over 20% of the annualmilitary budget in recent years, with modern tanks, artillery and frigates beingthe priority items. In May 2001 the army was given permission to spend Bt4bn(US$100bn at the annual average exchange rate for that year) on ammunitionand petrol to replace depleted reserves, but a policy of no new weaponsprocurement was also announced. Budget expenditure on defence as apercentage of total budget expenditure has dropped continuously in recentyears. In fiscal year 2003/04 (October-September) defence expenditure wasaround Bt80.9bn (7.3% of total expenditure), compared with Bt71.4bn (8.4%) in1999/2000.

Since the end of the second world war Thailand has been a staunch ally of theWest, holding annual joint military exercises with the US and Australia. In the1970s Thailand was in the front line of the ideological struggle in South-eastAsia. After left-wing governments took power in all three countries inIndochina (Vietnam, Laos and Cambodia) in 1975, Thailand became a base ofsupport for Khmer factions opposed to the Vietnamese occupation ofCambodia. During the first US war against Iraq in 1991, Thailand allowed USforces the use of the U-Tapao air base.

The defence budget is cut

Modernisation of the militarybegins in 1992

Thaksin appoints close alliesin the military reshuffle

Thailand�s alignment with theWest has faltered at times

14 Thailand


In 2003, at the start of the US-led invasion of Iraq, the Thai governmentremained conspicuously quiet, but eventually announced its neutrality. Thiswas in contrast to its regional neighbours, Singapore and the Philippines, whichgave their full backing to the US. However, Thailand later sent more than 440troops to Iraq. The troops fulfilled a largely humanitarian role in the conflict,but they sustained casualties in December 2003, when two soldiers were killedby a car bomb. The then US ambassador to Thailand, Darryl Johnson, said thatthe dispatch of Thai troops to Iraq had helped to strengthen bilateral ties withthe US, and the US later designated Thailand a non-NATO ally, meaning thatThailand will now benefit from greater access to US weaponry in addition toenhanced security co-operation.

The focus of foreign policy (other than overriding commercial interests) nowappears to be strengthening of regional links. This is not limited only toThailand�s immediate neighbours in the Association of South-East AsianNations (ASEAN), but to deepening ties with India and China and the widerAsian region. It is within this framework that Thaksin now seems to be strivingto become a regional figurehead. He has commented on the growing powervacuum in the region since the fall of former president Soeharto in Indonesia,and the retirements of Lee Kuan Yew as prime minister in Singapore and ofMohamed Mahathir as Malaysian prime minister.

Ties with Cambodia have been strained since the 1991 peace settlement at theend of the Indochina war, with the Cambodian government accusing Thaisecurity forces of backing an abortive coup in 1994 and�until its collapse in1998-99�supporting the Khmer Rouge through logging deals. However, in recentyears bilateral relations have warmed, and Thai businesses now haveconsiderable investment and assets in Cambodia. This new rapport was shakenin January 2003, when violent anti-Thai riots led to the burning of the Thaiembassy in the Cambodian capital, Phnom Penh, and considerable damage toThai business concerns. The riots were reportedly sparked by unsubstantiatedreports that a Thai actress had said that Cambodia�s national symbol, AngkorWat, should be returned to Thailand. The Thais responded angrily to the riots,and diplomatic relations were downgraded. However, relations have sincereturned to normal.

Thailand and neighbouring Myanmar have a long history of strained relations.Under the Chuan administration, relations with Myanmar deteriorated asChuan publicly condemned the Burmese regime and its human rightsrecord. Thaksin promised to improve relations between the two countries,switching the focus to mutually advantageous commercial deals. After a briefhoneymoon period, tensions escalated in May 2002 when the Burmeseauthorities accused the Thai army of aiding the Shan rebels (who are waging aguerrilla war against the Burmese army), and the border was closed for aroundfive months. The Thaksin administration has since attempted to strengthenrelations, in part to protect Thailand�s commercial interests in Myanmar, andalso to gain the military government�s support in clamping down on cross-border drug smuggling. Thaksin has been particularly supportive of the plansof the State Peace and Development Council (Myanmar�s ruling military junta)

A new foreign policy focus hasemerged

Tensions with Cambodiareappear

Thaksin offers support for theBurmese junta

Thailand 15


to implement its own reforms at a self-determined pace, and also of Myanmar�sright to hold the ASEAN chair in 2006. However, the government has beenworking behind the scenes to broker a deal whereby the junta backs downform the chairmanship without losing face. In early 2005 some ASEANmember states intensified pressure on the junta to initiate meaningful reform orpass on its turn to lead the group. The US, which has imposed trade sanctionson Myanmar, has often criticised Thailand�s stance towards the junta.

Security risk in Thailand

Armed conflict

Historically there has been little serious risk of armed conflict in Thailand, but sincethe beginning of 2004 there has been mounting civil unrest in the southernmostprovinces of Thailand, home to the minority Muslim population. Over the last 30years there have been sporadic outbreaks of violent protest by the Muslimpopulation against rule by the Buddhist-dominated government in the capital,Bangkok. Attacks on government and police property and personnel occurredfrequently even before the start of the recent violence. In April 2005 bombs weredetonated in the airport at Hat Yai, Songkhla province, and at the city�s branch ofCarrefour, a French supermarket chain, raising concerns that the violence was likelyto spread: these were the first bomb blasts to have occurred outside Yala, Pattani andNarathiwat. The latest targets, an airport and a foreign-owned business, also lendcredence to fears that the insurgents are now intent on attacking economic targets inaddition to government and military ones. Moreover, the greater sophisticationdemonstrated in the recent attacks may indicate increased support from forcesoutside the conflict zone itself, and perhaps from regional Islamist groups, such asJemaah Islamiah.From time to time Thai and Burmese forces clash along the joint border, withexchanges of mortar or shell fire. Although the chances of this escalating into amajor conflict are small, tensions between the two governments and the armedforces increased considerably in mid-2002. The joint border was closed in May, and avitriolic anti-Thai campaign was launched in the Burmese media. In October 2002full diplomatic relations were restored and the border was reopened.

Unrest/demonstrations

There are periodic demonstrations, but the focus of the unrest tends to be economic,rather than political, and directed at the government. Labour unrest has historicallybeen limited, but there is a risk that it will become more of a problem as thegovernment pushes ahead with the privatisation of state assets. Certain industries,such as power and the national airline, are widely perceived as important nationalassets, and their sale to foreign strategic partners could cause a public outcry. In early2004 the planned privatisation of the Electricity Generating Authority of Thailand(EGAT) triggered mass demonstrations by labour unions.

Violent crime

Street and petty crime exists at a relatively high level, and travellers outsideBangkok, in particular, need to take precautions. Violence is unlikely to be usedagainst foreigners unless they become involved with the local business mafia. In2001 an Australian who was auditing rice companies in the north of Thailand wasshot dead, and in May 2002 a translator and aide to a US businessman was killed

16 Thailand


(the businessman had asked for police protection). These killings are usuallycarried out under contract, and the masterminds are rarely caught. In one monthalone in early 2002, a Dutch investor in a small shrimp farm and an Americanrunning a private gibbon sanctuary were shot dead. In such cases, disgruntledemployees are the most likely perpetrators.

Organised crime

There is also a high level of organised crime, but it is primarily a domesticphenomenon. Crime rings, many of them involved in the drug industry, useviolence against rival gangs. However, foreign companies are unlikely to come intocontact with such groups. During 2001 there were two bombings at branches of aUK supermarket chain, Tesco, in Bangkok, raising the possibility that foreign retailinterests were being targeted. It has now been proved that the attacks were under-taken by members of a security firm hired by Tesco.

Kidnapping and extortion

Kidnapping is not a threat to foreign businesspeople. Extortion is rampant. Thesecurity forces, particularly the police and customs departments, can be expected todemand additional remuneration for services.

Resources and infrastructure

Population

Population growth has been slowing in recent decades (according to nationalsources), falling to an average of around 0.6% a year in 2000-04, from 3% a yearin the 1960s. According to the UN Development Programme, the infantmortality rate fell from 74 per 1,000 births in 1970 to 24 per 1,000 births in2002, as a result of improved health provision. Meanwhile, life expectancy atbirth rose from 59.5 years in 1970-75 to 69.3 years in 2002. Maternal mortalityhas also fallen, from 200 per 100,000 live births in 1970 to 44 by 2000. In 200424.9% of the population was below 15 years of age, compared with 40% of thepopulation below 13 years of age in 1980. In 2004 the population wasestimated at around 64.5m.

Population by age and region: data from 2000 census(m)Age Total Urban Rural0-4 4,387.1 1,145.8 3,241.35-9 5,030.9 1,295.5 3,735.410-14 5,203.5 1,377.9 3,825.615-19 5,341.3 1,640.1 3,701.220-24 4,931.6 1,804.1 3,127.625-29 5,248.5 1,868.9 3,379.630-34 5,448.7 1,814.6 3,634.235-39 5,386.9 1,742.2 3,644.740-44 4,849.7 1,606.1 3,243.645-49 3,876.7 1,254.2 2,622.550-54 2,914.7 916.7 1,998.155-59 2,284.5 672.3 1,612.260-64 1,998.2 593.9 1,404.3

Population growth is falling

Thailand 17


Population by age and region: data from 2000 census(m)Age Total Urban Rural65-69 1,526.0 437.0 1,089.170-74 1,043.4 312.0 731.475-79 594.9 174.4 420.580-84 323.8 101.9 221.985+ 226.8 76.4 150.3

Source: Bank of Thailand.

Although Thailand�s population is one of the most homogeneous in South-eastAsia, there are pronounced ethnic variations. In the northern border areas anestimated one-third of the population speaks Lao rather than Thai, and otherdialects are spoken that would not be understood in the rest of Thailand. Insome parts of the south a dialect involving a mixture of Thai and Malay isspoken. The main unifying force is religion�all but around 5% of thepopulation is Buddhist. The largest minorities are Muslim Malays (an estimated4% of the population is Muslim, most of whom are ethnic Malays residing inthe southernmost provinces) and the 600,000 people belonging to hill tribes inthe north.

About 14% of Thais claim Chinese ancestry, but the actual figure could be ashigh as 30%. In the capital, Bangkok, about 70% of the population is believed tohave some Chinese blood. Demographic data lack accurate ethnicity assess-ments, partly owing to assimilation policies followed by governments sincethe 1940s.

Thailand is urbanising rapidly. The proportion of urban residents increased to43.3% in 2000 from 33.2% in 1990, and is expected to continue to rise. Most areconcentrated in Bangkok and its extended Metropolitan Area, which has anestimated population of 12m. The west and far north are the most sparselypopulated areas of the country.

Education

According to the 2000 census, the average number of years of education thathad been received by those aged 15 years rose to 7.8 in 2000, up from 5.7 in1990. Government efforts at improving education have resulted in a 91%enrolment rate in primary schools, as well as a considerable rise in enrolmentin secondary schools. Attendance at secondary schools, although still relativelylow by regional standards, has risen from 17% in 1970 to 45.5% in 1990 and 65.7%in 2000, according to the census. Furthermore, about 22% of the college-agepopulation is enrolled in a tertiary-education institution, comparing well withthe rate of only 11% in Indonesia. The adult literacy rate, at 94%, is one of thehighest in the region.

However, nearly 80% of the current labour force has received only primaryeducation, and, most importantly, the quality of secondary and highereducation does not meet the requirements of an expanding economy aimingto remain internationally competitive. The majority of students in tertiary

Ethnic variations exist

The Chinese population hasbeen assimilated

Urbanisation is increasing

Educational standards remainlow, despite improvement

18 Thailand


education are enrolled in vocational colleges rather than universities, andcurriculum standards are generally poor. Consequently, the skills required for ashift to higher value added and high-technology industries are still in shortsupply. Less than 20% of graduates choose science or technology degrees,compared with 52% in Malaysia in 2000.

Under the 1997 constitution, free education is guaranteed for children up to 12years old. In addition, the National Education Act of 1999 stipulated atimeframe of three years for an ambitious reform of the entire system. In 2002the government finally enacted educational reform, with the launch of aninitiative guaranteeing 12 years of free education to all children and plans toincrease the autonomy of tertiary-level institutions. However, the scope of thereform was limited, and a number of important issues were not addressed.These include the curriculum (the Thai curriculum tends to require rote-learning for tests rather than teaching to solve problems or thinkindependently), regional differences in the quality of educational provision,access to schooling for the disadvantaged and, most importantly, the financialresources to guarantee 12 years of free basic education. In fiscal year 2003/04(October-September) expenditure on education rose by 11% year on year, toBt243bn (US$6bn), equivalent to 22% of the total budget. However, with over90% of the government�s education budget going on teachers� salaries andmanagement costs, little is left for investment in equipment and facilities.Lower-income families have also complained that, although there may nolonger be school fees, parents still have to buy textbooks and school uniformsfor their children and have to pay for some forms of tuition and schoolactivities.

Health

Healthcare is still predominantly provided by the public sector, althoughprivate-sector care grew rapidly during the 1990s. The public health network,which accounts for 70% of hospitals, includes a health centre in every tambon(group of villages), a hospital with ten to 90 beds in every district, and onereferral hospital with at least 200 beds and specialised care in every province.The mispricing of services over the years has meant that the public healthservices rely heavily on government subsidies, and many are close toinsolvency. In 2003/04 healthcare expenditure accounted for 7.4% of totalspending, down from 8% in 2002/03 but higher than the level of 6.6% in1999/2000. Although the level of healthcare is relatively high, there areconsiderable regional inequalities.

One of the key election promises of the Thai Rak Thai (TRT) party in 2001 wasuniversal healthcare at only Bt30 (around 75 US cents at the average 2004exchange rate) per hospital visit. This scheme, which covers people withouthealth insurance, was introduced nationwide by October 2001. Alreadycovered are state officials, who receive free treatment under the MedicalWelfare Scheme, and private employees paying into, and covered under, theSocial Security Scheme. Many expensive treatments, including kidney dialysisand anti-retroviral drugs for HIV/AIDS sufferers, are currently not being

Educational reform is behindschedule

Public-sector healthcarepredominates

Almost-free healthcare isintroduced

Thailand 19


offered, but consideration is being given to including them. Dental care isprovided under the scheme, and is proving costly. The healthcare scheme hasproved popular, despite a number of problems.

A key area of concern with the Bt30 healthcare scheme is financing. Thegovernment has established a flat-rate subsidy per patient (Bt1,308 in 2003/04)to pay the hospital or doctor, but both private and state hospitals arecomplaining that this does not reflect the true average cost per patient. Medicalstaff are reportedly reluctant to work in rural hospitals because of strains ontheir finances. There is also anecdotal evidence that participating hospitals areunwilling to dispense drugs costing more than Bt30, thus defeating the purposeof the scheme. Furthermore, there are concerns that in the long term thescheme could prove to be a disservice to the poor, as private hospitals willcontinue to improve their services, whereas state hospitals under theprogramme will shoulder an increased burden with limited funding.

Thailand has traditionally focused on preventive public health measures, suchas sanitation, clean water supplies and vaccinations, as the most cost-effectivemeans of improving the health of the population. This policy has led toremarkable improvements over the last decades, although life expectancy is stilllower than in neighbouring Malaysia. The decline in infectious-disease rateshas been much slower than in other South-east Asian nations, with tuber-culosis, dengue fever and malaria still prevalent. In addition, chronic anddegenerative conditions, such as cancer and heart disease, are on the rise. Thegovernment launched a massive public education campaign in the mid-1990sto raise the public�s understanding of the risk of HIV/AIDS, and the rate ofinfection appears to have stabilised.

Under the Social Security Act of 1990, both public and private hospitals arerequired to provide medical and health services to all insured workers. In firmswith more than one employee, employees and the government are each legallyobliged to contribute 1.5% of the payroll to the social security fund, whichprovides medical, maternity, death and disability benefits.

There has been a large increase in the number of private hospitals operatingover the past few years, and in 2001 they numbered 471. However, most ofthem still have occupancy rates of only around 30%, as more Thais covered bythe government scheme opt for the Bt30 treatment. Attempts to attract foreignpatients have been successful, with 973,500 such patients receiving treatment inThailand in 2003, compared with 560,000 in 2001. Standards of care are high,and hospitals use the latest medical technology. Prices are much lower than inWestern countries: equivalent treatment would cost twice as much in Japan,three times more in Singapore, five times more in Europe and eight times morein the US. There is considerable scope to attract even more foreign patients tothe private sector.

Old-age pensions were introduced in Thailand in 1998 under the Social SecurityAct of 1990. Payment of benefits will not start until 2013, at which time the firstmembers of the scheme will have completed the qualifying period. Only one

Private health providers arelooking overseas

Preventive public healthmeasures are instituted

The costs of the social securityscheme are rising

Pension provision is stilllimited

20 Thailand


worker in five belongs to the state pension scheme; members can expect toreceive a monthly payment equivalent to Bt300 (around US$7.50) at currentprices. There is concern about the low level of pension payments and thegrowing number of elderly people, and the government has been activelypromoting the private pension sector. There were 17 working people for everyThai over the age of 65 in 1970; by 2030 the International Labour Organisationexpects there to be only 13 working people for each person over 65.

Natural resources and the environment

Environment indicatorsAnnual rate of deforestation (% of forest area)a 2.6National protected areas (% of total land area)b 13.1

Carbon dioxide (CO2) emissions (tonnes per head)c 3.4

a Average rate for 1990-95. b 1997. c Emissions from fossil fuel burning and cement manufacturing(1996 data).

Source: Asian Development Bank, Annual Report, 1999.

Tin, zinc, gypsum and lignite are the most important minerals, although therehave also been promising finds of gold and copper, and there are smallerdeposits of other metals. Proven natural gas reserves are estimated at about15.4trn cu ft, and in 2003 Thailand produced 19.6bn cu metres of natural gas.Crude oil output dropped to 31.1m barrels in 2004, after rising by 31% to 35.5mbarrels in 2003. The country had proven oil reserves of 700m barrels in 2003,up from 352m barrels in 2000, after a number of significant oil discoveries inthe Gulf of Thailand. Other reserves are in a 2,600-sq-km section of water withdisputed sovereignty. Cambodia and Thailand both claim the area, and there isno prospect of an early resolution to the dispute. Thailand also has around2bn tonnes of recoverable coal reserves.

Severe pollution, especially in urban areas, has led to the development of asmall but active grass-roots environmental movement. Buddhist monks, whostill command near-universal respect among the population, lead many of themost effective organisations. A royal princess, Maha Chakri Sirindhorn, is aprominent and vocal supporter of environmental causes.

A World Bank environmental report published at end-2002 reported that airquality in Thailand had improved significantly in the previous ten years. Inparticular, air quality in the capital, Bangkok, which had been among the worstin the world, was now rated ahead of Beijing in China, Jakarta in Indonesia,New Delhi in India and Manila in the Philippines. Changes to reduce vehicleemissions have contributed to the improvement. The government has made theinstallation of catalytic converters mandatory in all new cars since 1993, and itphased out the use of leaded petrol in 1996, almost 12 months ahead ofschedule. New emission standards for cars and motorcycles came into force inmid-1999. Level-1 standards now apply, replacing the less stringent level-3standard that had been in effect since 1996. This is aimed at reducing carbonmonoxide emissions to 4.5g/km and hydrocarbon emissions to 3g/km, fromprevious limits of 13g/km and 5g/km respectively.

Minerals and gas abound

Efforts are being made toreduce damaging pollution

Thailand 21


The World Bank report did, however, say that there remained a problem withdust created by diesel engine emissions and open fires. The so-called PM10particles (tiny dust specks) can enter the respiratory system, causing allergies,lung cancer and heart disease.

Urban congestion and health concerns have brought a belated focus onenvironmental controls since the early 1990s, and a range of legislation nowapplies. The most significant measures are: the Enhancement and Conservationof National Environment Act, which institutes a formal environment manage-ment system; the Hazardous Substances Act, which enforces a hazardous-wastemanagement system; the amended Factories Act, which sets standards forpollution control; and the amended Public Health Act, which controls urbansolid wastes and acts on public complaints. All were enacted in 1992.

However, in April 1999 the cabinet proposed a number of amendments to theEnvironment Act in response to inadequate levels of enforcement. Theseinclude a shift of regulatory emphasis, putting the onus on offenders to provetheir innocence of alleged infringements. Public hearings are now mandatoryfor projects potentially harmful to the environment, national heritage or localcommunities. All industrial consumers are required to post sureties againstfuture infringements to ensure that they comply with the rules, and pollutioncontrol officers are empowered to penalise offenders or force them to takecorrective action if other agencies fail to act. Pollution control officers can alsoseek direct compensation for damage caused by discharges. Individuals haveaccess to all public information on waste discharges, and have the right to seekcompensation for damage or injury resulting from pollution.

Environment protection zones have been designated, and are protected underthe environmental laws. These include an industrial hub on the easternseaboard, and tourist destinations (such as Pattaya and Phuket) and biologicallyrich forests and cultural heritage sites (including the Bang Krachao area on thebank of the Chao Phraya river). The latter is to be preserved as the �lung� ofBangkok.

Transport, communications and the Internet

Thailand has 40,000 km of all-weather roads. The first stage of a new 4,000-kmnational highway system was announced in 1999. Rural road construction enjoyspolitical support, as most members of parliament (MPs) are from the provinces.However, new urban expressways remain a higher priority, owing to prestigefactors and the influence of the powerful automotive lobby. Budgetary constraintsand a lack of foreign investor interest have meant that the upgrading of nationalhighways has been slow.

Thailand, China and the Asian Development Bank (ADB) have each committedUS$30m in loans to construct a 228-km route from Chiang Rai in northernThailand to Kunming in Southern China. In October 2002 Thailand extendedits first preferential loan to Laos, worth Bt1.4bn, for construction of the 85 kmstretch of road that passes through Laos. Construction of the road began inearly 2003 and is expected to be completed in 2007. The road is likely to lead to

Legislation exists, butenforcement is poor

Road construction has politicalsupport

A direct route to China isunder construction

22 Thailand


higher levels of trade and travel within the Mekong region, although environ-mentalists are concerned about the negative impact on the poor populationliving alongside the road. Prostitution, drugs and the illegal trade in womenand children could escalate. The Thai Ministry of Finance estimates that theroad will reduce transport costs for Thai businesses trading with China by 15%.

A regional highway facilitating communications and trade between India,Myanmar and Thailand is also planned. The three countries announced plansfor the joint construction of the 1,400-km highway in April 2002.

In December 1999 the first mass transit system, the Bangkok Skytrain, openedthree years behind schedule and some US$900m over budget. Passengernumbers were initially far below expectations, but have been picking up. In late2004 daily average passenger numbers were around 380,000, rising to 400,000on the busiest days. In its first year of operation the system carried only150,000 passengers a day.

The aim of developing an integrated mass transport system in Bangkok moveda step closer in July 2004, when Thailand�s first underground train systemfinally commenced full operation. The 18-station underground railway stretches20 km along one route through the centre of Bangkok. The train operator,Bangkok Metro, said that it was confident of achieving an average dailypassenger volume of 240,000-250,000 in the first year of operation.

In September 2004 the government gave its approval in principle to plans todevelop a mass transport system in Bangkok, focusing on the extension of theSkytrain and underground rail networks. An investment budget of Bt480bn hasbeen approved to expand the network from its present 44 km to around290 km within five years.

Two deep-sea ports on the eastern seaboard at Laem Chabang and Map Ta Phuthave reduced pressure on Bangkok�s congested Klong Toey port, which handled90% of freight until 1998. In 2004 the government awarded a 30-year con-cession to a consortium led by a Hong Kong-based company, Hutchison PortHoldings, to operate six new berths at the Laem Chabang deep-sea port. Thedeal marked a major step in the expansion of the port, and forms part of anoverall plan to improve the country�s transport network. The Laem Chabangport currently has an annual capacity of 3.8m TEUs, with seven berths. Withthe additional six berths, capacity will expand by 6m TEUs over the next tenyears. The government is keen to promote the use of Laem Chabang port ratherthan Klong Toey in order to reduce the volume of traffic in and out of Bangkok.

The government�s plan for the privatisation of the Port Authority of Thailand(PAT), which was originally scheduled for 1999, has been repeatedly delayedbecause of union opposition to the granting of control over Thailand�s ports toprivate investors or foreign interests. Under the current proposal, the PAT wouldbe split into two units, the first being a self-regulated organisation (SRO)keeping port land in state hands, and the second being PAT Corporation,handling port operations, which would be earmarked for privatisation. TheMinistry of Finance would hold a 100% stake in the SRO. The two main ports,Klong Toey and Laem Chabang, would be managed as separate companies

Port facilities are to expand

A mass transport system istaking shape in Bangkok

Thailand 23


under a single holding firm, and 90% of the PAT�s 4,200 workers would berelocated to PAT Corporation.

Plans to develop a second international airport have been under considerationsince 1960. Bangkok urgently needs to modernise and expand its airportfacilities. The current international airport at Don Muang is nearing capacityand needs to be upgraded. Vested interests have been the main cause of the40-year delay in the development of the second airport at Nong Ngu Hao. Theproject developer, the state-owned New Bangkok International Airport Co,finally commenced construction of the airport, Suvaranabhumi, at the 32-sq-kmproject site in Bang Phli, Samut Prakan, in early 2002. It is estimated that theproject will cost around Bt125bn (US$2.8bn), and that when completed it willbe capable of handling over 40m passengers a year; Don Muang InternationalAirport currently handles around 33.5m passengers a year. Although the primeminister, Thaksin Shinawatra, has been determined to meet the challenge ofgetting the airport up and running by the deadline of September 25th 2005,there have been delays. In April 2005 the transport minister, SuriyaJungrungreangkit, said that the airport would not open on schedule, but did notannounce a revised completion date.

One of Thailand�s obligations under its membership of the World TradeOrganisation (WTO) is the liberalisation of its telecommunications sector by2006. Progress on liberalisation, however, has been repeatedly delayed, withthe result that Thailand is falling behind its regional peers in the level andquality of telecoms services. The constitution made provision for the establish-ment of a National Telecommunications Commission (NTC) that will overseethe liberalisation process, but the formation of the seven-member NTC boardhad suffered numerous delays owing to interference in the selection process byvested interests. In August 2004 the Senate (the upper house) finally completedthe process by choosing seven candidates out of a pool of 14.

The establishment of the NTC should ensure that the long-awaited process oftelecoms deregulation and the issue of licences can proceed. One of the mainissues on the NTC�s agenda is the need to define the roles to be played by theformer state regulators and telecoms operators, TOT Corp and CAT Telecom.

Fixed-line telephone connections grew to more than 7m in 2003 from around1.4m in the early 1990s, when services were partly privatised. TOT Corp is themarket leader in the fixed-line market, with more than 3.6m lines. Fixed-lineoperators have been losing ground to the mobile sector in recent years. Mobile-phone usage has grown rapidly, with a penetration rate of about 36% in 2004,up from only 3.5% in 1998. The leading mobile operator is AdvancedInformation Services (AIS), which is run by Thaksin�s family-owned business,Shin Corp; AIS had around 15.2m subscribers at end-2004. DTAC, which isoperated by Total Access Communications, itself part-owned by Norway�sTelenor, is firmly placed as the second-largest mobile-phone operator, witharound 7.8m subscribers at end-2004. TA Orange, a joint venture between aFrench telecoms company, Orange, and two Thai companies, CP Group and

The opening of a new airportis delayed

A telecoms regulator is finallyestablished

Mobile-phone usage expandsrapidly

24 Thailand


TelecomAsia, entered the market in early 2002 and had around 3.1m users atend-2004. (Orange has since pulled out of the joint venture.)

The newest entrant to the mobile-phone sector is a code division multipleaccess (CDMA)-based mobile service, Hutch, which was formed through a jointventure between CAT Telecom and a Hong Kong-based firm, Hutchison. In late2004 Hutch had around 700,000 subscribers, up from only around 224,000 atend-2003. Despite this rapid growth, Hutch�s expansion plans have beenhampered by delays in the expansion of the CDMA network caused by theslowness in establishing the NTC.

The Internet penetration level has risen, but problems remain in the form ofregulatory constraints, high costs, unfamiliarity with computer technology andthe limited number of websites in the Thai language. One constraint is cost:leasing Internet lines in Thailand costs six times more than in Hong Kong andover twice as much as in Malaysia and the Philippines. Even after privatisation,CAT will maintain its international-connections monopoly until 2006, so thatfees are unlikely to fall. This means that Internet service providers (ISPs) have topass on these costs to their customers, resulting in high user fees. However, thisis partly offset by the provision to subscribers of unlimited-time telephone callscosting Bt3 (less than 1 US cent). In 2004 there were an estimated 11 Internetusers per 100 people, up from nearly eight in 2002 and fewer than fourin 2000.

The leading supplier of broadband Internet services, True Corp, is enjoyingstrong growth. In late 2004 True Corp had around 160,000 subscribers,representing around 90% of the total market, and was aiming to have around400,000 subscribers by end-2005. TOT Corp is another provider of broadbandInternet services. However, its subscriber base remains low, at only around10,000 in late 2004, compared with a capacity of around 200,000.

The National Broadcasting Commission (NBC) is another new regulatory bodythat was due to be set up but whose formation has been delayed owing toaccusations of corruption and cronyism in the selection of its members. InMarch 2002 the Administrative Court invalidated a shortlist of 14 commissionmembers, citing favouritism. There is considerable concern about the extensivepowers that the NBC will have to allocate television and radio frequencies aswell as to set guidelines for the content of radio and television programmes. Allterrestrial free-to-air television services are now in the hands of governmentagencies, the army or families with close connections to government ministers,including the prime minister.

Energy provision

Thailand�s current energy provision is adequate and reliable�in 2003 installedcapacity stood at 25 gw. Energy conservation schemes have proved successful,and domestic energy production is continually increasing, reducing Thailand�straditional reliance on imports. In 1992 the country imported 90% of its energyneeds (mostly in the form of oil), but this had fallen to just over 60% by 2001.Thailand now produces around 20% of its own petroleum requirement.

Internet penetration rises

Liberalisation of the media isstill suffering delays

Energy provision is adequate

Thailand 25


Demand for power in Thailand fell sharply during the 1997-98 recession, buthas since recovered. Electricity consumption rose to nearly 120.3bn kwh in2004, up by 7.3% year on year, following rises of around 7% a year in 2000-03.The government has revised downwards its forecast for energy demand overthe next decade or so, in line with lower economic growth forecasts andsuccessful energy-conservation projects.

Thailand�s electricity generation, around 70% of which is fuelled by gas, isvulnerable to supply disruptions and price volatility. Demand for gas has beengrowing strongly in recent years, partly because of high international oil prices,but also because it is preferred on the grounds that it is a cleaner fuel. Thailandstarted buying gas in significant quantities from Myanmar in 2000. The initialcontract committed Thailand to buying a minimum of 200m cu ft/day,increasing to 260m cu ft/day in 2004. In 2002 Myanmar agreed to ease theterms of the contract and cut the price of gas bought by Thailand in excess ofthe stipulated contract minimum.

A major scheme that could reduce Thailand�s import bill is the US$1.2bnThailand-Malaysia gas pipeline and related gas-separation projects in the southof Thailand. After many delays owing to local protests, the project was finallygiven the go-ahead by the government in May 2002 after the path of thepipeline was relocated 5 km away from its original route in order to reduce itsenvironmental impact. Construction of the 366-km pipeline commenced inmid-2003. The project is a joint venture between PTT (formerly the PetroleumAuthority of Thailand) and the Malaysian state-owned oil and gas company,Petronas. Thailand�s 50% share of natural gas supplies from the 7,250-sq-kmJoint Development Area (JDA, the overlapping economic zone betweenMalaysia and Thailand) will provide the country with an additional estimated5trn cu ft of gas reserves (40% of the current total). Estimated reserves of naturalgas in the Cakerawala field, the first to come on stream in the JDA, amount to2trn cu ft. The gas separation plant will have the capacity to produce 500m cu ftof gas a day.

In response to rising global oil prices, the Thaksin administration has intensifiedits efforts to cut the country�s crude oil import bill, partly through measures topromote energy conservation. These include electricity-saving campaigns forlarge buildings and factories as well as 800 government buildings, and afinancing plan for small and medium-sized businesses to renovate or adapttheir buildings in order to reduce energy consumption. The government hasalso been strongly supportive of efforts to encourage motorists to switch togasohol, which is produced by combining one part of ethanol with nine partsof petrol.

The Ministry of Energy had already begun to promote alternative energy usebefore the current need arose. In August 2002 the government launched its firstschemes to promote the mass production of ethanol. The plan is to makeethanol from tapioca and molasses (from the sugar industry), and to use it tosupplement oil imports. The country�s first commercial fuel-grade ethanolplant, producing 25,000 litres per day, has been running since October 2003.However, by May 2004 a total of 18 manufacturing firms had applied for

Electricity generation isheavily reliant on gas

Policies are proposed to reduceenergy imports

26 Thailand


licences to produce a total of up to 6.75m litres of ethanol a day. It was proposedthat five of the plants would use molasses in their production process, whereasthe remaining 13 would use cassava.

The government has suffered delays in its plans to liberalise the power sector.The main objectives are to split the Electricity Generating Authority of Thailand(EGAT) into generating and transmission bodies, and to allow independentpower producers (IPPs) to feed electricity directly into the national grid. In 2004the planned privatisation and restructuring of EGAT was postponed, primarilybecause of strong opposition from management and employees of EGAT andother labour unions. Although the planned sale of EGAT remains controversial,in early 2005 the government was aiming to complete the sale by the end ofyear. The initial public offering is likely to involve only 25% of the firm�s equity,with the Ministry of Finance retaining a 75% share. The move will neverthelessprovide EGAT with much-needed capital to support its expansion plans. TheMinistry of Energy was also planning to invite bids from IPPs in 2005 forcontracts for power stations with a combined capacity of more than 13 gw from2011 onwards.

The economy

Economic structureMain economic indicators, 2004Real GDP growth (%) 6.1 a

Consumer price inflation (av; %) 2.8 a

Current-account balance (US$ m) 7,281 b

Exchange rate (av; Bt:US$) 40.22 a

Population (m) 64.5 b

External debt (year-end; US$ m) 50,768 b

a Actual. b Economist Intelligence Unit estimates.

Source: Economist Intelligence Unit, CountryData.

Based traditionally on agricultural exports, the Thai economy was transformedinto one of the most diverse in South-east Asia in the 25 years to 1998. By the1970s the active promotion of foreign investment had already created anindustrial sector based on import substitution. In the 1980s an export-orientedmanufacturing sector, based on labour-intensive products such as textiles andgarments, began to develop. After 1990 the fastest growth was in higher-technology goods, such as computer accessories and motor vehicle parts.

Since 1996 successive governments have paid a high price for the earlier neglectof structural reform, ranging from a failure to foster backward linkages inindustry to the inadequate provision of higher education. This left industryunable to adopt the technology needed for higher value added production. Inthe 1990s pegging the baht to a strengthening US dollar eroded the com-petitiveness of low-cost goods, and import-dependent high-technology productswere unable to fill the gap. The ever-widening current-account deficit anddependence on short-term capital inflows to finance it paved the way for thecurrency turmoil of 1997-98.

Liberalisation of the powersector is delayed

Major structural change sincethe 1970s

Thailand 27


As export earnings fell and capital was withdrawn, GDP contracted by 1.4% in1997 and a massive 10.5% in 1998, compared with an average annual growthrate of 8.5% in 1990-96. After the crisis struck in mid-1997, consensus grew onthe need to prioritise structural reform. The subsequent recession forced acertain amount of restructuring, but a steady recovery in 1999-2000 dulledreformers� zeal. In 2001 the slowing economy, driven by a downturn in exportdemand, led the administration to refocus on the need for structural reform,and particularly on the need to invest in education, agriculture, technology andsmall and medium-sized enterprises. Robust economic growth since 2002 hasagain dampened the administration�s willingness to push ahead with reforms.

Comparative economic indicators, 2004Thailanda Singapore a Indonesiaa US b Japanb

GDP (US$ bn) 163.5b 106.8 257.6 11,735.0 4,666.2GDP per head (US$) 2,533 25,294 1,151 40,047 a 36,646GDP per head (US$ at PPP) 7,952 31,103 3,700 40,047 a 29,119

Consumer price inflation (av; %) 2.8b 1.7 b 6.1b 2.7 0.0Current-account balance (US$ bn) 7.3b 30.3 2.8 -665.9 172.1

Current-account balance (% of GDP) 4.5b 28.4 1.1 -5.7 3.7Exports of goods fob (US$ bn) 96.1b 200.5 71.7 807.6 540.3

Imports of goods fob (US$ bn) -85.0b -168.9 -50.6 -1,473.1 -407.3External debt (US$ bn) 50.8 23.7 135.5 � �Debt-service ratio, paid (%) 9.8 1.6 16.9 � �

a Economist Intelligence Unit estimates. b Actual.

Source: Economist Intelligence Unit, CountryData.

Economic policy

Over the past 40 years economic policy has followed the dominant develop-ment theories of the day. Thus Thailand has moved from an import-substituting policy to a strategy more closely based on a free market, althoughprotectionist tendencies persist. The import-substituting policy grew out of aprogramme of �state capitalism� undertaken during the 1950s. The governmentestablished the Board of Investment (BOI) in 1959 in an effort to stimulate bothforeign and domestic investment, all behind high protective barriers. Many ofthe leading industrial groups of these years developed close links with thepowerful military and bureaucracy. The BOI�s concessions tended to skewdevelopment towards large concerns, giving little incentive either to smallfirms or for technical innovation.

The groundwork for the rapid growth of 1986-95 was laid in response to thesecond oil shock in 1979, although the 1984-85 recession provided the catalystfor many of the measures to be implemented. Thailand had weathered the firstoil crisis of 1973 reasonably well, with average annual GDP growth of 8% in1975-78, but underlying structural problems were indicated by widening current-account and budget deficits.

In response to these rising deficits, in 1980 the new government, led by theprime minister, Prem Tinsulanond, unilaterally undertook a World Bank-stylestructural adjustment programme that secured a series of loans from the Bank

Import-substitution policiesare abandoned

Structural adjustmentproceeds in the 1980s

28 Thailand


two years later. Implementation of the adjustment programme was slow, and itwas only after the downturn of 1984-85 that its main objectives�stabilisation,diversification, decentralisation and co-operation between the public andprivate sectors�began to be realised. The devaluation of the baht in November1984 put into motion a far more vigorous export-promotion policy. Fiscal policyremained expansionary, but the budget moved into surplus in 1988 andremained in the black until fiscal year 1996/97 (October-September) as a resultof high revenue generated by strong economic growth.

Financial deregulation and the opening of the Bangkok International BankingFacility (BIBF) offshore scheme in 1993 made cheap corporate funds morereadily available. The combination of a wide differential between domestic andinternational interest rates and the maintenance of a fixed baht:US-dollar pegled to excessive short-term foreign-currency borrowing. Meanwhile, inadequateregulation and supervision led financial intermediaries and corporate entitiesto borrow to invest with little attention to the quality of their investments.Eventually, overcapacity caused rents and prices to fall sharply, meaning thatmany investments were unable to generate a market rate of return. This led to arise in the banking sector�s non-performing loan portfolio.

The Bank of Thailand (BOT, the central bank) was forced to abandon thecurrency peg on July 2nd 1997, having expended a large proportion of itsforeign-exchange reserves in an unsuccessful attempt to defend the baht. Thesubsequent collapse of the baht sharply increased the baht cost of servicingprivate debt, and the country was forced to seek an IMF rescue packagein August of that year. Subsequent economic policy was governed by theperformance criteria set out in the quarterly letters of intent prepared by theMinistry of Finance and the BOT in collaboration with the IMF. The stand-byarrangement ended on June 19th 2000, but the government had not drawn onthe facility since June 1999. During the period of the arrangement, a total ofUS$14.3bn was drawn down from the US$17.2bn financing package provided bybilateral and multilateral contributors. Thailand repaid the loans by July 2003,ahead of schedule.

The IMF agreement of August 1997 initially insisted that the government aimfor budgetary surpluses by trimming expenditure and increasing taxes.However, the severe slowdown in the economy led to a relaxation of fiscalpolicy in early 1998, and by 1998/99 the overall public-sector deficit had reachedBt571bn (US$13.8bn), or 12.4% of GDP. Within this total, the central governmentdeficit reached 2.4% of GDP. The recession and lower taxes�value-added tax(VAT) was reduced from 10% to 7%�lowered the revenue base, but this fall wasmore than offset by sharply higher import tax receipts and rising corporate taxpayments. Government expenditure grew modestly from 1998/99 to 2000/01,but this was almost entirely the result of interest-rate payments on the publicdebt. The overall public-sector deficit shrank to Bt120bn (2.4% of GDP) in2000/01 because of the improved financial performance by state enterprisesand a tighter central government policy stance.

Fiscal policy is expansionary,despite IMF conditions

Thailand 29


Central government finances(Bt bn; fiscal years Oct-Sep unless otherwise indicated)

Oct-Dec2002/03 2003/04 2004/05

RevenueTax revenue 869.8 1,009.1 � Income tax 332.6 407.9 � Personal 111.4 128.7 � Corporate 199.7 247.5 � Petroleum income tax 21.6 31.6 � Taxes on consumption 404.3 477.6 � Value-added tax 142.6 178.7 � Excise taxes 249.1 279.1 � Taxes on international trade 109.1 102.6 � Other taxes 23.8 21.0 �Non-tax revenue 90.8 116.0 � State enterprises 58.9 52.1 � Other 32.0 63.9 �Total revenue 960.6 1,125.1 249.2ExpenditureCurrent 775.2 904.5 �Capital 163.2 201.3 �Total expenditure 938.4 1,105.8 301.8


The Thaksin administration�s economic policy agenda, dubbed �Thaksinomics�,remains controversial. Among the administration�s most conspicuous policyinitiatives are the following: farmers were offered a three-year moratorium onthe debt owed to the state-owned Bank for Agriculture and AgriculturalCo-operatives (BAAC); a grant of Bt1m (US$25,000) has been disbursed to eachof the 70,000 or so villages under a revolving Village Fund scheme; a Bt30(75 US cents) healthcare scheme has been implemented; and subsidised loansto small and medium-sized enterprises (SMEs) have been offered by the state-owned SME Bank. Although there are no firm data to indicate the preciseimpact of each policy component on the economy, these policies have beenlauded both domestically and internationally for contributing to the impressiverate of economic growth in 2003-04. However, the policy agenda has also beenheavily criticised for being populist and irresponsible. Opposition groups haveproduced anecdotal evidence to back up their claims that Thaksin�s policieshave led to a build-up of household debt, destroyed the sense of communityself-reliance and destabilised the health service, and have also put at risk thesustainability of the sovereign debt burden through the increase in off-budgetcontingent liabilities associated with lending by state-owned banks.

Despite the expansionary nature of the administration�s fiscal policies, thecentral government�s budget position has strengthened in recent years. In2003/04 the government recorded a second consecutive budget surplus, atBt19.4bn, compared with a planned deficit of Bt99.9bn for the year and asurplus of Bt22.2bn in 2002/03. The fairly fast pace of economic growth inrecent years has contributed to the rapid expansion in total revenue. In 2003/04total revenue reached Bt1.13trn (US$27.9bn), up by around 17% year on year and

Thaksin�s expansionarypolicies help to boost growth

The central governmentbudget returns to surplus

30 Thailand


higher than the target of Bt1.06trn. Revenue from taxes on income and profitsjumped by 22.6% year on year, and consumption tax revenue rose by 18%.However, revenue from taxes on international trade fell by 6%, reflecting cuts inimport tariffs. The overall surplus in 2003/04 was also the result of lower thanexpected budgetary expenditure, as spending reached Bt1.11trn compared witha budgeted total of Bt1.16bn. Current expenditure (mainly consisting of wagesand salaries, subsidies and spending on goods and services) expanded by 17%in 2003/04 to Bt905bn, and capital expenditure rose by 23.3% to Bt201bn. Thegovernment planned for the 2004/05 budget to be balanced, with expenditureand revenue both totalling Bt1.2trn.

Monetary policy was traditionally formulated in order to smooth exchange-ratevolatility. Under the auspices of the IMF programme the BOT adopted amonetary-targeting regime, under which daily and monthly targets for themonetary base were set, price stability being the main policy objective. SinceMay 2000, however, the BOT has formally adopted an inflation-targetingregime. The BOT�s Monetary Policy Committee (MPC), which meets every sixweeks, pursues monetary policy by adjusting interest rates to the appropriatelevel to keep inflation within set targets.

As part of its demand-management solution in 1997, the IMF called for asubstantial rise in interest rates to limit further currency depreciation and tightmonetary policy to contain inflation. These policies failed to stabilise markets,and consequently monetary policy was progressively relaxed during 1998-2001.By June 2001 the BOT�s benchmark 14-day repurchase (repo) rate had stood at alow of 1.5% for over 18 months. In May 2001 a public disagreement betweenthe government and the central bank over the level of interest rates led thefinance minister, Somkid Jatusripitak, to dismiss the governor of the centralbank, Chatu Mongol Sonakul. Chatu was replaced by Pridiyathorn Devakula,an economic adviser known to share Thaksin�s views on monetary policy.(Pridiyathorn�s relations with Thaksin soured from late 2004, however, owingto policy differences.) On June 8th 2001 the benchmark interest rate was raisedby 100 basis points in line with the government�s view that higher interest rateswould support the currency and would have a wealth effect on consumerconfidence by raising the return on savings and deposits.

By mid-2003, however, as international interest rates and local inflation fell, the14-day repo rate had dropped to a historic low of 1.25%, a level at which itremained until August 2004. During the second half of 2004 and into 2005 theBOT began steadily tightening monetary policy by raising the repo rate, whichreached 2.25% in April 2005. In early 2005 the MPC came to the conclusion thatupward pressure on prices was likely to build in the near future, in line withhigher oil prices, with production costs already picking up rapidly. In addition,although this was not mentioned in the MPC�s minutes, the BOT also appearedkeen to maintain a 25-basis-point spread below comparable US rates, whichhad been on a rising trend.

Thaksin appealed to nationalist sentiment in his 2000 election campaign,criticising the tax and tariff incentives offered to foreign investors and the

Monetary policy shifts toinflation-targeting

The economy remains open,despite nationalist rhetoric

The benchmark interest raterises from an historical low

Thailand 31


generally high level of import demand. Concern about the possibility of areturn to more inward-looking policies partly accounted for the sharp drop inforeign direct investment in 2001. Thaksin subsequently toned down hisnationalist rhetoric, and has since even suggested offering further incentives toattract foreign investment.

The government has been promoting the development of SMEs since takingoffice, primarily by facilitating their access to financing. Many of the govern-ment�s policies have been aimed at raising rural incomes, and Thaksin hasinitiated talks with other countries that are major producers of the agriculturalexports most important to Thailand, in a bid to gain a degree of control overthe international supply (and thus eventually the price) of these goods.Although remaining supportive of SMEs and the agricultural sector, thegovernment has targeted a number of new sectors for development, includingtourism, the fashion industry, software and the property market.

Economic performanceGross domestic product(% real change; av)

Annual average2004 2000-04

Private consumption 5.6 5.3

Government consumption 4.1 2.5Gross fixed investment 14.4 7.8Exports of goods & services 7.8 7.8

Imports of goods & services 12.1 10.5GDP 6.1 5.0

Source: National Economic and Social Development Board.

Thailand has experienced impressively high rates of real GDP growth over mostof the past 40 years, averaging nearly 8% a year in the 1960s, 7.9% a year in1975-79 and a remarkable 9.1% in 1987-95. A slowdown began in 1996, whenGDP growth fell to 5.5%, and the economy contracted by 1.4% in 1997 and by10.5% in 1998, the first serious recession in Thailand for decades. The economyrecovered to grow by 4.4% in 1999 and 4.6% in 2000, but slumped again in 2001in response to weak global demand for exports. Real GDP growth accelerated in2003 to 6.7%, up from 5.4% in 2002 and 2.1% in 2001, largely driven by strongdomestic consumer demand. The pace of growth slowed slightly in 2004,dropping to 6.1%, partly reflecting the devastating impact of the bird fluoutbreak on the agricultural sector.

Exports have been the main engine of economic growth for several decades,but particularly since the late 1980s. Total exports of goods and services grew involume terms by an average of 15.2% per year between 1989 and 1995, but by1996 the declining competitiveness of such traditional labour-intensive goods astextiles, footwear and toys meant that exports fell by 5.5% in that year. Thedepreciation of the baht in 1997 and the first half of 1998 had been expected totrigger a recovery of the export sector, but owing to numerous structuralconstraints export growth was at first disappointing. However, in 2000 the

Exports have traditionallydriven growth

Growth has reboundedstrongly in recent years

32 Thailand


export sector expanded by 17.5% year on year. Weak global demand in 2001 ledto a renewed slowdown in exports, and the sector contracted by 4.1%. But thedownturn proved to be short-lived, as exports of goods and services reboundedstrongly in 2002, growing by 12.1%, and maintained their expansion at anannual average rate of 7.4% in 2003-04. The high foreign content of exportsmeans that imports generally move in line with trends in the export sector; in2002 imports of goods and services expanded by 13.6% in 2002, followed by arise of 7.3% in 2003. In 2004, however, import growth was particularly strong,with imports of goods and services expanding by 12.1%, largely owing to aresurgence of investment demand.

Rising consumer confidence and higher incomes have resulted in a strong pick-up in domestic demand in recent years, which has bolstered overall economicgrowth rates. Both farm and non-farm incomes have improved in line withhigher commodity prices and the impact of the government�s expansionarypolicies, such as the moratorium on farmers� debt repayments and the VillageFund scheme. Largely as a result of low interest rates and rising confidence inthe business sector, overall investment spending rose markedly in 2003 and2004, up by 11.7% and 14.4% in the two years respectively, compared withincreases of 6.5% in 2002 and only 1.2% in 2001.

On the output side of the economy, the agricultural sector�s contribution toGDP (at constant 1998 prices) has been in persistent decline, falling from around20% in 1983 to around 9% in 2004. Although this trend is a natural side-effect ofthe record growth rates experienced in other sectors of the economy, such asconstruction and manufacturing, it is also a reflection of low levels ofinvestment, low rural incomes and falling commodity prices prior to 2002. Theagricultural sector expanded by 6.8% in 2003, slightly faster than overall GDP,but then experienced a year-on-year contraction of 4.4% in 2004, primarilyowing to the devastating impact of that year�s bird flu outbreak on poultryfarming.

The manufacturing sector�s share of output has stabilised at around 36-38% ofGDP (at constant 1998 prices), following annual average output growth in thesector of 13.5% per year in 1987-95. The manufacturing sector was hit hard by the1997-98 economic crisis and still suffers from overcapacity, low technology anda dependence on imported components. There has, however, been a resurgencein activity in the manufacturing sector recently, with the sector expanding by10.4% in 2003 and 8.3% in 2004. The services sector, which now accounts forabout 50% of GDP, was also badly hit during the recession, and would havecontracted further had it not been for the relatively buoyant tourism sector.Apart from the downturn in 2003 owing to the damaging impact of theregional outbreak of Severe Acute Respiratory Syndrome (SARS), the tourismsector has been expanding fairly rapidly.

Inflation, as measured by the consumer price index (CPI), averaged 5% per yearbetween 1992 and 1997. In 1998 the devaluation of the baht led to import priceinflation, but stagnant domestic demand contained the increase in the CPI toan annual rate of 8.1%, well below the government�s upper limit of 10%. The

Consumer price inflation hasbeen fairly benign

Manufacturing�s share of GDPstabilises; agriculture�s falls

Domestic demand supportsgrowth in recent years

Thailand 33


average inflation rate in 1999 slowed to 0.3%, owing to a more stable baht anddeclining world commodity prices. Low capacity utilisation and relatively highunemployment meant that the principal sources of inflation in 2000-01 wereexternal, consisting of bouts of baht weakness and volatile international oilprices. Although inflation has been fairly benign, the pick-up in GDP growthsince 2002 has contributed to upward pressure on consumer prices. In 2004annual inflation reached 2.8%, up from 1.8% in 2003 and 0.6% in 2002, despitesubsidised fuel prices and a stable exchange rate.

Inflation(% change, year on year)

Annual average2004 2000-04

Consumer prices 2.8 1.7Producer prices 6.7 3.7

Source: Economist Intelligence Unit.

Rapid rates of economic growth in recent years have contributed to animprovement in employment. In 2004 the annual average rate of unemploy-ment fell for the sixth successive year, dropping to 2.1% from a high of 4.4% in1998. The average number of unemployed people fell by around 2% in 2004 tosome 740,000, compared with around 822,800 in 2002 and 1.1m in 2001,according to the National Statistics Office. The size of the registered labour forcerose by 2.3% in 2004 to more than 35.7m, out of a total population of 63.4m.However, official data are believed to underestimate the number ofunemployed.

Regional trends

Strong growth rates since 1970 have led to a steady rise in the level of realincome per head, even though population growth was rapid until the 1980s.However, there are alarming disparities in national wealth distribution, whichwere amplified by the economic downturn of 1997-98. According to a reportpublished by the National Economic and Social Development Board (NESDB)in 2001, in that year 15.9% of the population lived below the poverty line,represented by a monthly income of Bt886 (about US$20). The north-east ofThailand accounted for 30% of those below the poverty line, and the southernstates accounted for a further 15%. The central area, including the capital,Bangkok, accounted for only 0.2%. The NESDB also reported that the level ofpoverty had risen from only 11.4% of the population in 1996, providing starkevidence of the damaging social impact of the 1997-98 regional financial crisis.

Governments have responded by promoting economic decentralisation. Since1993 about 65% of investment receiving government incentives has gone outsideBangkok, but most reached only as far as the Eastern Seaboard Industrial Zone,about an hour�s travel from the capital. The BOI responded in 1997 by settingup the country�s first special economic zones in 13 of the poorest provinces, butthe timing was poor and there has been little response. The Thaksinadministration has focused more strongly on developing the agricultural sectorthan on trying to industrialise rural areas.

The unemployment rate isfalling

Wealth is unevenly distributed

34 Thailand


Economic sectors

Agriculture

Once the backbone of the economy, the agricultural sector (including forestryand fisheries) is declining in terms of its importance to the overall economy�in2004 it accounted for only 9.2% of GDP (at constant prices)�with growth ratesusually lagging behind overall economic growth. The number of peopleemployed in agriculture is generally declining, and accounted for around 40%of total employment in 2004, compared with 52% in 1995. However, theagricultural sector is still closely linked with employment and incomeprospects, which in turn determine domestic demand. Thailand�s richestresource area is the Central Plains rice belt. Maize, cassava, cotton andpineapple are cultivated in upland areas, and rubber is produced in the southof the country. The planted area has doubled in the past three decades to morethan 20m ha, of which rice paddy accounts for one-half. To date, productionhas generally been increased by expanding the planted area, rather thanthrough productivity improvements involving irrigation and the use offertiliser. However, urbanisation and salinisation are eating into arable land,and a gradual decline in the cultivated area is expected.

The administration of the prime minister, Thaksin Shinawatra, has activelypromoted the development of the agricultural sector and wealth creation inrural areas. One of the government�s policy planks has been an easing of thedebt burden borne by poor farmers. When the government took office in 2001,it implemented a debt moratorium for farmers, under which around 2.3msmall-scale farmers with debts totalling Bt94bn (US$2.3bn) were permitted tosuspend debt repayments to the Bank for Agriculture and Agricultural Co-operatives (BAAC) for up to three years. In November 2004 the governmentimplemented another scheme aimed at assisting indebted farmers. Thisinvolves the Farmers� Rehabilitation and Development Fund taking over fromcommercial and state-owned banks 90% of farmers� debts with collateral and50% of their debts without collateral. Around 200,000 farmers with combineddebts of more than Bt25bn have registered with the scheme.

Thai agriculture has generally been inefficient in terms of productivity. Amongthe measures to be adopted to improve output and exports sales are villageInternet projects designed to provide farmers with market information in orderto make their planning more effective. Similarly, higher levels of productivityand greater use of technology are to be encouraged in order to raise the qualityof Thai food-processing. Simultaneously, the government is attempting tonegotiate with other countries that are major producers of agricultural exportproducts, in order to raise and control prices.

Rice, the dominant agricultural export crop, is irrigated in the Central Plains andin the basins of northern Thailand, but is rain-fed elsewhere. The annual riceharvest has averaged around 26m tonnes in recent years. Thailand remains theworld�s largest exporter of rice, and in 2004 sold nearly 10m tonnes, comparedwith an annual average of 7.1m in 2000-03. Thailand is hoping that China�s

The government is keen tosupport farmers

Thailand remains the world�slargest rice exporter

Agriculture now accounts forless than 10% of GDP

Thailand 35


accession to the World Trade Organisation (WTO) and the decline in China�sdomestic rice production will lead to a rise in global demand for Thai rice. Thegovernment is also aiming to achieve greater control over rice prices. InDecember 2002 officials from the five largest Asian rice-exporting countries�China, India, Pakistan, Thailand and Vietnam�met in the Thai capital, Bangkok,to discuss how to build an information exchange system in rice trade. The fivecountries agreed that Thailand would serve as the focal point for the com-pilation and distribution of information on the rice trade to the participatingcountries. The information would then be used to set rice prices, with a view tomaintaining stability in the market and protecting the interests of farmers.

The bird flu crisis

In late January 2004 the Thai authorities finally admitted to an outbreak of bird flu.Vietnam, Japan, South Korea and Taiwan had already reported outbreaks of theinfection. Prior to this, the Thai authorities had repeatedly declared that researchshowed the country�s chickens to be suffering from a poultry cholera outbreak and arespiratory disease, which emerged in late 2003, rather than from bird flu. Thailandhad, however, instituted a mass cull of chickens, and by mid-January 2004 close to1m birds had been slaughtered in an effort to stem the spread of the then-mislabelled disease.In the weeks following the initial confirmation of the outbreak, more and moreprovinces reported cases, and a number of human deaths were confirmed as beingthe result of infections by the bird flu virus. By mid-April a total of around 35mchickens had been culled in the government�s campaign to rid the country of birdflu. After declaring in mid-May that all chicken farms in the country were free of birdflu, the government was forced to concede in early July that bird flu had returned,resulting in a further cull of birds.In early 2005 the poultry industry remained mired in the bird flu crisis, withsporadic outbreaks of bird flu throughout the region signalling that the spread of thevirus had not been fully contained. The bird flu outbreak has devastated the poultryindustry: in 2004 exports of frozen fowl plunged to only 26,600 tonnes (withearnings of US$43m), from more than 371,000 tonnes (nearly US$600m) in 2003.The government has pledged financial support for containment and preventionefforts, which focus on changing poultry-farming methods, primarily by encouraginga switch to closed-system farming. The rapid outbreaks of bird flu have largely beenblamed on small-scale open-system farms, which are more likely to be susceptible tothe spread of the virus by migratory birds. The government has so far ruled out theuse of vaccines to protect poultry from bird flu, owing to the likely ban by manycountries on imports of poultry from Thailand that would follow, but it may allow astudy of the use of vaccines to proceed.

Thailand�s 150,000 fishermen have 50,000 vessels, including about 17,000deep-sea trawlers. Most are now big commercial operations with refrigerationand canning facilities for shrimp, lobster, squid, cuttlefish and tuna. Since 1999unfavourable tariff changes by the EU and the US have led to sluggish growthin exports. The industry has also suffered from periods of high oil prices, whichsignificantly increase production costs, and from rising competition (particularlyin the US market) from China, Vietnam, Indonesia and the newly liberalisedIndian export industry. The longer-term outlook for the Thai fishing sector is

The fishing industry is underthreat

36 Thailand


uncertain, owing to the depletion of stocks and low levels of investment. Inparticular, the depletion of marine resources in the Gulf of Thailand and theclosure of Burmese waters to Thai fisherman in 1999 has forced them to lookfor new fishing grounds. Indonesian waters are now the most popular, and thisis causing friction between the two countries.

The fisheries industry was hit hard by the devastating December 2004 tsunami.According to a survey by the Fisheries Department, a total of 4,529 fishing boatswere destroyed, including 1,127 large vessels. Shrimp farmers have also beenbadly hit. According to the Thai Shrimp Association, the tsunami caused morethan Bt1bn of damage to hatchery farming and facilities, and more than Bt1bnof damage to post-larval shrimp production.

Thailand is the world�s largest frozen-shrimp exporter, and the US is the largestmarket for Thai shrimps, typically accounting for around 50% of the total.However, the export volume of fresh and frozen shrimp dropped by more than30% in 2002, with the value of exports falling to US$800m, from US$1.5bn in2000 and US$1.2bn in 2001. The contraction was a result of a banned antibiotichaving been found in shipments to the EU in February 2002 and of thesubsequent restrictions imposed on imports from Thailand. The EU started tocheck every shipment of Thai shrimps, whereas previously testing was carriedout on a random basis. In February 2003 the EU reverted to random testingafter citing its satisfaction with the Thai government�s efforts to raise standards.The export volume of fresh and frozen shrimp rebounded as a result, rising by20% year on year in 2003 and stabilising in 2004.

The Thai shrimp industry has since faced a new challenge, that of anti-dumping duties on its exports to the US. In January 2005 the US InternationalTrade Commission (ITC) upheld a preliminary decision reached in February2004 to impose the duties on imports from Thailand and five other countries(namely Brazil, China, Ecuador, India and Vietnam). The ITC imposed a rate of6.03% on Thai shrimp (down slightly from the preliminary rate of 6.39%). This islower than the maximum rates applied to China (112.8%), Vietnam (25.8%),Brazil (10.4%) and India (9.5%). The anti-dumping suit was filed by the USSouthern Shrimp Alliance, a group representing shrimp farmers and processorsin eight southern US states.

Mining and semi-processing

Although the mining sector�s share of GDP has fallen steadily in recent years toabout 2.2% (including natural gas and crude oil output), the sector has enjoyedsteady growth in recent years. In 2004 it expanded by 5.2%, following on fromgrowth of 6.8% in 2003 and nearly 11% in 2002. Natural gas production reached788.6bn cu ft in 2004 after three successive years of expansion. Crude oilproduction has also risen with the development of new fields in the Gulf ofThailand. However, crude output dropped to 31.1m barrels in 2004, after risingby 31% to 35.5m barrels in 2003. The performance of other minerals has beenmixed. Gypsum production rebounded strongly in 2004, reaching 8m tonnes,up from only 1.9m tonnes in 2003. Output of tin concentrate continues to fall,dropping to 700 tonnes in 2004, its lowest level for seven years. Iron ore output

Shrimp exporters suffer EUtests and US tariffs

Mineral output is anaemic,apart from oil and gas

Thailand 37


expanded sharply in 2002, rising to 570,000 tonnes, before dropping to lessthan 10,000 tonnes in 2003 and 135,600 tonnes in 2004.

Thailand has begun to realise its considerable potential for gold mining. In early2003 a new gold mine was opened in the north-eastern province of Loei by alocal company, Thungka. The mine is expected to yield 5 tonnes of gold in total,worth an estimated Bt1.5bn over five years. Copper deposits estimated at 900mtonnes have been found in Chachoengsao and Loei provinces. Limited depositsof tungsten, antimony and lead also exist.

Exports of precious stones and jewellery have risen steadily in recent years,reaching US$2.3bn in 2004. Exports are principally to Japan, Israel, Belgium andthe US. Thai competitiveness has been enhanced by the exemption of rawmaterials from import duty and revisions to the rate of value-added tax (VAT)levied on gold. The principal stones used in Thai jewellery are sapphires,rubies, zircon, garnet, beryl, quartz and jadeite.

Manufacturing

Manufacturing accounts for around 35% of current-price GDP. The sector wascapital-intensive and heavily oriented towards import substitution until the1984 baht depreciation, when it shifted to more labour-dependent exportindustries, such as integrated circuits and electronics assembly, footwear andtoy-making. The 1997-98 regional financial crisis led to a sharp contraction inmanufacturing output of 10% in 1998. According to the Ministry of Industry,20,000 factories, or 16% of all those registered with the ministry, closedbetween 1996 and 2000. Of these, most were small and medium-sizedcompanies closing because of insufficient cashflow and a lack of competitive-ness. The slowdown in exports accounted for the weakness in manufacturing,although the sector was helped by the positive impact of lower internationaloil prices. The manufacturing sector rebounded in 1999, with output rising by12.5%, according to the manufacturing production index produced by the Bankof Thailand (BOT, the central bank). However, annual growth in manufacturingslowed to 3.3% in 2000 and only 1.3% in 2001. The sector has since enjoyed astronger pick-up, with output rising by an annual average of more than 10% in2002-04, in line with strong domestic demand and a recovery in exportdemand. The capacity utilisation rate picked up to 69.2% in 2004, from 67.5% in2003 and 62% in 2002.

Manufacturing sector, 2004(% change, year on year; volume terms)

Manufacturing production 11.1 Commercial vehicles 28.2 Integrated circuits 19.8 Petroleum products 8.3


The Thai government has achieved some success in its efforts to expandThailand�s automotive industry and transform it into the �Detroit of the East�,with vehicle-makers keen to use the country as a platform for export to other

The automotive industryattracts more investor interest

Manufacturing has recordedstrong growth in recent years

Exports of precious stones andjewellery continue to grow

38 Thailand


members of the Association of South-East Asian Nations (ASEAN). However,plans to abolish the local-content requirements for assembly and thus enhancethe country�s attractiveness were delayed, owing to the Thaksin adminis-tration�s more nationalist stance on investment. This approach has since beentoned down, and the government has started to offer new incentives. Partly inresponse to these initiatives, a number of leading global automotive firms,including Japan�s Toyota and Ford of the US, have announced or implementedplans to relocate production bases to Thailand or to expand their facilities there.The number of vehicles produced in Thailand has risen rapidly in recent years,reaching around 930,000 units in 2004, more than double the level in 2001.Around 30% of locally produced vehicles are exported.

Domestic demand for vehicles has been strong in recent years, in line withrising consumer confidence, loose fiscal and monetary conditions and therelease of pent-up demand. Nearly 60% of domestic sales consist of pick-up trucks.

The electronics and electrical appliances sectors have recorded strong growth inthe past three years, after struggling in 2001. Output of electronics (mainlyintegrated circuits) expanded by an annual average of 27% in 2002-04, and thatof electrical appliances (mainly televisions) increased by 8.5%. The first signs ofa recovery appeared in early 2002, in response to some inventory rebuilding inthe US. Most of the products produced are import-dependent, and face fiercecompetition from Malaysia and Singapore in global export markets. The Thaigovernment has recognised the need to promote higher value added tech-nology, but Thailand lacks much of the infrastructure required for a competitiveinformation technology sector, including a skilled labour force.

The textile and garment sector has recorded fairly strong output growth inrecent years, but exports have been suffering as a result of intensifyingcompetition from low-wage suppliers, such as China and Vietnam. In 2004garment export earnings rose by 12% to US$3.1bn, but remained below the levelrecorded in 2000. Thailand has been attempting to move up the value chain bypromoting Bangkok as a regional fashion hub. The Thai Garment Manu-facturers� Association (TGMA) is also determined to help small and medium-sized enterprises (SMEs), which account for around 70% of garment factoriesnumerically, to improve their competitiveness. In early 2005 the TGMAunveiled its �Fast Fashion� programme, which comprises strategies to developmodern management skills, expand overseas markets and link the industryfrom upstream weavers to downstream garment-makers. The need to enhancecompetitiveness has intensified recently. At end-2004 the WTO�s Agreement onTextiles and Clothing brought to an end the system of export quotas which hadoperated since 1974. Now that importers in the US and the EU are no longerrestricted by limits on imports, demand for textiles from China is booming, andexporters with higher cost bases and capacity constraints are likely to suffer.

The opening since 1996 of two refineries by international oil giants RoyalDutch/Shell (Netherlands/UK) and Caltex (US), and the expansion of a thirdplant by another US firm, ExxonMobil, have made Thailand a net exporter of

The electronics and electrical-goods sectors return to growth

Textile and garment exportsare weak

Petroleum refineries haveconsiderable spare capacity

Thailand 39


petroleum products. However, the 1997-98 recession and subsequent govern-ment intervention hit the industry hard. By end-2000 the Thai governmentowed the country�s six oil refineries a total of Bt2bn (US$50m) for sellingliquefied petroleum gas (LPG) to the public at 40% of cost. This has merelyadded to the financial problems of the refiners, which were already facing highcosts, high levels of US-dollar debt and weak domestic demand. Capacityutilisation dropped from over 90% in 1997 to around 75% in 2001, but haspicked up since, reaching 85.5% in 2004. After declining by around 1% in 2000,output of petroleum products rose by an annual average of 2.8% in 2001-03 and8.3% in 2004. Total crude oil refining capacity stood at around 1m barrels perday in 2004.

Production in the steel industry has expanded fairly rapidly in recent years, andoutput from hot- and cold-rolled steel plants has been particularly strong. Thesector has generally benefited from strong performances by sectors dependenton steel inputs, in particular the vehicle and automotive parts industries.Recovery in the property and construction sectors also raised demand. Inaddition, in March 2004 the government launched an anti-dumping policyaimed at curbing the influx of foreign-made steel. The steel industry was one ofthe main victims of the 1997-98 regional financial crisis, and although it hassubsequently been restructured relatively successfully, the sector still hasestimated debts of Bt300bn.

The steel industry is fragmented, but the merger in 2002 between the steelfacilities of a Thai steel group, NTS, and a leading local industrial conglomerate,Siam Cement, suggested that the need for restructuring had finally beenaccepted. The merged entity, known as Millennium Steel, now controls 25% ofThailand�s steel capacity.

Construction

After being hit particularly hard by the 1997-98 crisis (by late 1998 about 60%of the 13,000 registered construction firms were either insolvent or had ceasedoperating), in recent years the construction sector has been recovering steadily,with some signs of a renewed bubble. The sector contracted for threeconsecutive years in 1999-2001 (on a national-accounts basis), but expanded by5.2% in 2002, 3.3% in 2003 and an impressive 13.2% in 2004. Historically, Thaifirms were relatively small, and even before 1997 Thai-owned enterprises weresuffering from an influx of bigger and more efficient European, Asian andAustralian competitors. Since the crisis, a number of larger developers andcontractors have restructured their debts, and there has been considerableconsolidation in the industry. There are now 200-300 larger companies thatare in a good position to benefit from the recovery in the industry. Several ofthe leading listed developers have taken foreign partners.

The housing market is leading the current recovery. Low interest rates, risingconsumer confidence and an increase of more than 100% in the value ofproperty sector stocks have contributed to a rapid expansion in luxury real-estate developments in Bangkok and its suburbs. The construction of middle-class housing grew by 6% in 2001, and received a further boost in 2002 from

The construction sector isrecovering

The steel industry hasstrengthened

40 Thailand


government-sponsored incentives, including a reduction in property transferfees to 0.01%, a tax deductions on home purchase down payments of betweenBt100,000 (US$2,350) and Bt200,000, and a cut in the special business taxto 0.11%. The government had also encouraged state banks to offer cheapmortgages at a time when interest rates were already at a low level. However,in 2003 the government and the BOT took steps to prevent a recurrence of the1997 property market bubble. In an effort to stem speculation, the BOTannounced in November 2003 that mortgage loans would be limited to 70% ofthe purchase price for properties worth more than Bt10m (US$250,000). Norestrictions have been placed on properties worth less than Bt10m.

Financial services

The main institutions with responsibility for policymaking and supervision ofthe financial system are the Ministry of Finance and the BOT. The BOTsupervises banks, finance firms and housing-loan officials, and plays a leadingrole in instituting market reforms. The Securities and Exchange Commission(SEC), established in 1975, oversees the Stock Exchange of Thailand (SET) andmonitors the activities of securities firms. Insurance companies are theresponsibility of the Ministry of Commerce.

In response to the 1997-98 crisis, the authorities set up a number of newinstitutions to restructure the financial sector and restore confidence. To preventbank runs and systemic risk, the Financial Institutions Development Fund(FIDF) was established to guarantee the deposits and liabilities of financialinstitutions. The government also created the Financial Sector RestructuringAuthority (FRA), to auction off the assets of financial companies that hadclosed down, and the Thai Asset Management Corporation (TAMC), to managethe non-performing loans (NPLs) of the banking sector and ultimately to act asa centralised debt-restructuring mechanism. The TAMC accumulated aroundBt780bn in bad loans transferred from state-owned commercial banks. InDecember 2004 it announced that it had completed the restructuring of badloans worth Bt767bn, of which around Bt526bn had been completely resolved.

Thailand�s financial institutions were at the centre of its economic crisis, andthe slowness of their rehabilitation has been a serious obstacle to economicrecovery. In early 1997 the collapse of a leading company, Finance One, forcedthe government to recapitalise most of the 91 finance firms from an emergencyfund, but 56 were subsequently closed and 12 others placed under statemanagement following the flotation of the baht. Six banks were taken over bythe government in 1998, owing to their inability to recapitalise. The remainingbanks and finance firms were given recapitalisation targets, which all but twoof the banks met by the end-2000 deadline. Before the 1997 crisis Thailand had15 commercial banks, but their number is now down to 12.

In early 2004 the cabinet approved the so-called Financial Sector Master Plan, ajoint proposal by the government and the BOT that envisages sweepingchanges to the structure and number of banking and financial institutionsoperating in the country. When the plan is fully implemented, only two kinds

The BOT plays a leadingsupervisory role

Many financial institutionsclose after the 1997-98 crisis

Banks are set to undergo aperiod of consolidation

Thailand 41


of Thai financial institutions will be permitted to operate: full-servicecommercial banks, and restricted banks. To obtain a licence to operate as full-service commercial banks offering a range of services, institutions have to havea minimum capital of Bt5bn. Restricted banks must have at least Bt250m incapital and focus on offering services to SMEs and low-income groups. Forfinancial institutions that are unable to obtain licences as commercial orrestricted banks, licences are being granted enabling them to operate as creditcompanies without the right to accept public deposits. Foreign-owned financialinstitutions will be permitted to operate as full-service banks, thereby enjoyingthe same scope of business as Thai commercial banks but without the right toopen branches. Alternatively, foreign-owned financial institutions are allowedto operate as subsidiaries, enabling them to enjoy the same scope of businessas Thai commercial banks and to open between three and five branches.

Under the master plan, the number of state-owned commercial and specialisedbanks will be reduced from the current 13 to three or four. At present there arethree state-owned commercial banks, namely Krung Thai Bank (KTB), BankThaiand Siam City Bank (SCB), and there are nine state-owned specialised banks,the largest of which are the Government Savings Bank, the Bank for Agricultureand Agricultural Co-operatives, the SME Bank and the Industrial FinanceCorporation of Thailand (IFCT). Currently, in addition to the state-owned banksthere are nine Thai commercial banks (four of which are majority-owned byforeign banks) and 18 foreign banks with single branch offices.

The banking system remains plagued by NPLs, and the problem is hamperingthe efficient functioning of the sector. In an attempt to improve the quality ofmanagement in Thailand�s banking system, in 2004 the BOT introduced tighterprovisioning rules for commercial banks� NPLs. Although a number of bankshave managed to restructure some bad loans and have reduced the level ofNPLs in their portfolios, the second-largest commercial bank, KTB, suffered asharp upturn in NPLs in mid-2004, the result of the reclassification of itsdoubtful loans following a BOT review. Now that BOT auditors are makingqualitative as well as quantitative assessments of loans, the KTB had to includedoubtful loans to 14 business projects in its NPL assessment. Other banks havealso had to revise up their assessment of NPLs following the BOT directive. Atend-2004 the fourth-largest bank, SCB, reported NPLs of nearly Bt11bn (around3.4% of outstanding loans), compared with Bt8.6bn at end-November.Kasikornbank, the third-largest, reported NPLs of Bt56.9bn (9.9% of outstandingloans) at end-2004; this was up slightly from Bt55.3bn previously, despite someprogress made in debt restructuring.

Despite loose monetary conditions and the consequent fall in bank lendingrates, loan growth remained subdued until 2002. Commercial banks� creditcontracted by 5.8% in 2001, following a 10% fall in 2000. Credit has since pickedup, rising by 7.4% in 2002, 3.6% in 2003 and 6.7% in 2004, but this remains muchlower than the annual average growth rates of 20-25% recorded in the early1990s. The recovery has also been characterised by loans for consumptionrather than investment purposes. Because banks are obliged to meet

Banks are still reluctant to lend

Non-performing loans remaina problem

42 Thailand


increasingly stringent provisioning requirements, they have been reluctant tolend for fear that it will add to their NPLs.

Although commercial bank lending remains weak, the credit-card sector hasexpanded rapidly. There were 8.6m credit cards in circulation at end-2004, upby 32.3% year on year and from 1m at end-2001. At end-2003 there were 11 non-bank issuers in operation, compared with three before the 1997 financial crisis.Reflecting concerns about the rapid build-up in credit-card debt, in November2002 the BOT restored the Bt15,000 (US$350) minimum monthly salary require-ment for credit-card holders, a regulation that it had abolished earlier in theyear. The central bank also established an interest-rate ceiling on overdue debt,allowing credit-card issuers to charge a maximum annual interest rate of 18%after taking other fees into account.

The Stock Exchange of Thailand (SET), the country�s main equity market, lostmuch of its appeal after the peak trading period in the mid-1990s, owing to alack of quality listings and limited liquidity. This was compounded by the 1997financial crisis, and in 1998-2000 the number of listed stocks dropped by 30%.The SET made a modest comeback in 2001-02, however, buoyed in large partby the successful initial public offerings of shares of state-owned enterprises,and in 2003 the SET was the world�s best-performing bourse, its compositeindex rising to 772.2 at end-2003, a year-on-year increase of 116.6%. Although thegovernment was pleased to present the impressive upward trend as a reflectionof improving economic fundamentals, the rapid rise created concern in somequarters, and particularly on the part of the market regulator, the Securities andExchange Commission. However, the fairly sluggish performance of the SETthroughout 2004�the composite index had fallen to 668 points by the end ofthe year�has reduced such concerns.

Other services

Prior to the regional outbreak of Severe Acute Respiratory Syndrome (SARS) in2003, the tourism industry had enjoyed fairly impressive growth. Touristarrivals rose by 5.8% to just over 10m in 2001, despite the global economicdownturn and the September 11th terrorist attacks in the US, bringing inBt295bn (US$6.6bn) in revenue. Thailand benefited from its reputation as a safeand stable society and from its efforts to step up security for visitors. In 2002the number of foreign tourist arrivals jumped by more than 7% to 10.8m.According to the Tourism Authority of Thailand, revenue generated fromforeign tourists in 2002 reached more than Bt320bn, up by 8.5% year on year.However, in 2003 the tourism industry suffered a serious blow, as the outbreakof SARS deterred regional travel, and arrivals fell to only 9.7m. The industryrebounded quickly in 2004, with arrivals jumping to 12m, but the devastatingtsunami that hit the southern part of the country on December 26th 2004 wasfollowed by a severe drop in tourist arrivals. According to data from PhuketInternational Airport, the number of passenger arrivals in January 2005plunged to only 181,511, from nearly 510,000 in January 2004. The drop ininternational arrivals was even more severe: arrivals fell by 88.8% year on year,

The credit-card sector expands,raising concerns

Tourism growth is hamperedby SARS and the tsunami

The stockmarket enjoys astrong rebound in 2003

Thailand 43


to only around 27,000. However, the situation is likely to have improved in thefollowing few months. Hotel occupancy rates in Phuket have been picking upin line with a range of promotions (primarily substantial discounts on rates),and in March 2005 occupancy rates stood at around 40%, compared with lessthan 10% in the weeks following the tsunami.

The tourism industry counts the economic cost of the tsunami

There have been varying estimates of the cost of damage to buildings andinfrastructure in the six southern provinces affected by the December 2004 tsunamidisaster�Phuket, Krabi, Ranong, Phang Nga, Satun and Trang. The Tourism Authorityof Thailand (TAT) initially estimated the cost of damage to hotels in the two worst-affected areas, Khao Lak in Phang Nga, and Phi Phi island in Krabi, at Bt12bn(US$300m) and Bt2.8bn respectively. Khao Lak, which has developed rapidly overthe past few years, with major international hotel chains opening large luxuryhotels, suffered the greatest devastation in terms of the number of people killed andthe extent of damage to hotels: few of the hotels in Khao Lak, which had a total ofaround 6,000 rooms, were left standing. The situation on Phi Phi, which had around4,000 hotel rooms, was the same, with few hotels left standing. In Phuket, which hasaround 32,000 hotel rooms, the damage was less severe. Initial surveys of hotelsaround the island indicated that less than 20% had suffered serious damage, andreportedly a week after the tsunami only 15% of hotels remained closed. According toTAT, the damage on Phuket was estimated at Bt16bn, excluding that to public utilitiesand roads and to the power grid.

The external sector

Trade in goods

Foreign trade, 2004(US$ m; fob-cif)

Exports 97,413 Machinery & mechanical appliances 13,017 Electrical apparatus for circuits 12,687Imports 95,353 Fuel & lubricants 13,252 Electrical machinery 9,698 Non-electronic machinery 9,263Trade balance 2,060

Source: Bank of Thailand, Key Economic Indicators.

Merchandise exports were equivalent to around 59% of current-price GDPin 2004, compared with around 20% in the mid-1980s. Structural factors,including diversification into new and higher value added product areas, haveplayed a major role in export growth. Computer components, electronicconsumer goods and vehicles, which are produced at relatively low cost inThailand, are steadily eclipsing textiles and shoes, which dominated the exportsector until the mid-1990s. Earnings from integrated circuits and related partsreached nearly US$5bn in 2004, up from US$3.3bn in 2002 and only US$1.4bnin 1993. However, Thailand is currently unable to upgrade further, as it lacksthe necessary infrastructure and the educational attainment of competitors

Hi-tech exports eclipse labour-intensive ones

44 Thailand


such as Singapore and Malaysia. Traditional exports regained some ground asa result of the post-1997 currency depreciation and lower labour costs, butThailand is also rapidly losing competitiveness in these areas to lower-costproducers, such as India, China and Vietnam. Although exports of textileproducts rose by 16% to US$5.1bn in 2004, growth has been weak over the pastdecade (textile export revenue stood at US$5.7bn in 1995).

The value of merchandise exports (on a customs basis) expanded by 22% in2004 to US$97.4bn, following on from growth of 17.7% in 2003. These rates ofgrowth reflect a marked improvement; export revenue rose by only 4.5% in2002, following a contraction of 6.5% in 2001. The rebound largely reflectsstrengthening external demand, particularly in the US market. Manufacturedgoods accounted for around 87% of all exports in 2004, and earnings from oneof the largest single categories within the manufactured-goods sector, com-puters and parts, rose by 12% to US$9bn. The agricultural sector recorded exportrevenue of US$8bn in 2004, an expansion of more than 20%, as global pricesfor key commodities strengthened. Rising prices in the past couple of yearshave helped rubber to reclaim its position as the main agricultural exportearner, ahead of rice. In 2004 earnings from rubber exports reached US$3.4bn,compared with only US$1.5bn in 2000; revenue from rice exports totalledUS$2.7bn in 2004, up from US$1.6bn in 2000.

The Thaksin administration, although keen to reduce the country�s dependenceon the export sector to drive economic growth, has also enacted a number ofpolicies designed to boost export potential. These include measures to expandexports to non-traditional markets, such as China, India, Bangladesh, NorthAfrica and the Middle East, as well as efforts to promote agriculturaldevelopment, with the intention of increasing the value added of agriculturalexports. In 2001 the government also launched the �One Village, One Product�programme, in a bid to develop uniquely Thai goods with a predominantlylocal content that could be marketed abroad.

Furthermore, the government has been pursuing a sort of commercialdiplomacy�attempting both to eliminate non-tariff barriers in its major marketsand to control the international supply of Thailand�s major exports byco-ordination and co-operation with competitors. For example, a tripartiterubber pact was signed in September 2002 between Malaysia, Indonesia andThailand (the world�s three largest producers of the commodity), aiming forgreater control of the rubber market and ultimately greater pricing power. Thegovernment has also been fairly successful in pursuing agreements establishingfree-trade areas with a number of important trading partners. Most recently, inApril 2005 the government signed an agreement with New Zealand to removetariffs on trade. Deals have also been concluded with India (in October 2003)and Australia (signed in July 2004 and effective from January 2005), andnegotiations with the US and Japan are continuing.

Merchandise imports (cif) were equivalent to around 58% of current-price GDPin 2004, compared with around 20% in the mid-1980s. Thailand�s dependenceon imports of intermediate and capital goods has increased rapidly, owing to

Exports continue to expandrapidly

Capital and intermediategoods push up imports

The government attempts toboost export growth

Thailand 45


the shift from an agricultural to an industrial base. The total import bill (on acustoms basis) expanded by nearly 27% in 2004 to US$95.4bn, following growthof 16.8% in 2003. In 2004 capital goods imports expanded by 20% andaccounted for around 43% of the total, and imports of intermediate productsand raw materials jumped by 32.5% to US$26.5bn. Consumer-goods importshave also grown rapidly in recent years in line with strong private sectordemand. In 2004 imports of consumer goods reached US$8.9bn, up fromUS$6.6bn in 2000, with consumer durables, such as electrical appliances,accounting for around 5% of total imports. The rapid expansion of theautomotive industry has contributed to sharp growth in imports of vehiclesand parts; these totalled US$3.5bn in 2004, compared with less than US$2bn in2000. In line with world prices, the country�s import bill for crude oil has risenrapidly, reaching US$10.7bn in 2004, up from around US$6bn in 2000.

Although the merchandise trade account (fob-cif) has been in surplus in everyyear since 1998, the surplus fell sharply in 2004, to around US$2bn. The surplusreached a record high of US$12.1bn in 1998 owing to the sharp decline inimports in that year, before dropping in each of the next few years to reachUS$3.6bn in 2001. The situation improved in 2002-03, with the merchandisetrade account recording surpluses of US$4.6bn and US$5.2bn. Deficits had beenthe norm in the years leading up to the 1997 financial crisis, with a recorddeficit of US$16.3bn in 1996.

Main trading partners, 2004Exports to: % of total Imports from: % of totalASEAN 21.7 Japan 23.5US 15.9 ASEAN 16.6EU 14.5 EU 9.8 UK 3.1 China 8.5Japan 13.9 US 7.6China 7.3 Taiwan 4.2Singapore 7.2 South Korea 3.8

Source: Bank of Thailand, Key Economic Indicators.

During the boom years of the 1990s, higher purchasing power and closerinvestment ties made regional Asian countries Thailand�s fastest-growingtrading partners. The Association of South-East Asian Nations (ASEAN)emerged as the largest buyer of Thai goods in 1995-96. The regional recession in1997-98 arrested this trend, however, and the US and the EU became the majorgrowth markets for Thai exports. In recent years stronger regional economicgrowth and policies to enhance regional integration have meant that ASEANcountries have absorbed larger shares of Thai exports, reaching 21.7% of thetotal in 2004. Although the US remained the largest single export market in2004, it absorbed less than 16% of total exports, compared with more than 20%in 2001. Japan is Thailand�s second-largest market in terms of individualcountries, accounting for 13.9% of total exports in 2004. China is emerging as anincreasingly important export market, accounting for 7.3% of total exports in2004, up from only 4.4% in 2001. Japan remains Thailand�s biggest tradingpartner largely because of its role as the leading import supplier, accounting fornearly one-quarter of Thailand�s merchandise imports.

The trade surplus falls sharplyin 2004

Japan remains Thailand�sleading trade partner

46 Thailand


Invisibles and the current account

The improved merchandise trade balance has brought a similar improvementin the current account since the 1997-98 regional financial crisis. Persistentdeficits were recorded throughout the 1990s, peaking at 8.1% of GDP in 1995. By1997 this had fallen to 2% of GDP, and in 1998 a record surplus of US$14.3bn, or12.7% of GDP, was recorded. After three successive years of steady decline in thecurrent-account surplus, to US$6.2bn in 2001, the surplus remained aroundUS$7bn-8bn in 2002-04.

According to the IMF�s balance-of-payments data, the services balance fell intodeficit in 2000 after two years of surplus, and has remained in deficit sincethen. The deficit narrowed slightly in 2002, to US$1.3bn, after remaining aroundUS$1.6bn in 2000-01, partly reflecting a pick-up in tourism revenue. However, itwidened in 2003-04, reflecting the downturn in tourism revenue in 2003 andthe expansion in trade-related services imports in 2004. The income accountremains in deficit, having risen from around US$1.3bn-1.4bn in 2000-02 toUS$1.8bn in 2003 and US$2bn in 2004, with rising income payments onequities largely offsetting the decline in foreign debt service.

Slower economic growth in other countries has eaten into overseas workers�remittances. The exact contribution of remittances to the economy remainsuncertain, as many workers remit their earnings through unofficial channels.However, the Ministry of Finance estimates that flows amount to at leastUS$2bn a year. In recent years, remitted earnings have been offset by increasingpayments to foreign skilled workers and professionals by Thai companiestrying to ease their own labour shortages as they take their production up thetechnology ladder.

Capital flows and foreign debt

After many years of surplus, net capital movements fell into deficit in 1997, andremained in deficit until 2004. According to the Bank of Thailand (BOT, thecentral bank), the main factors leading to the annual deficits were bankingsector debt repayments to foreign banks and the capital account deficit of thepublic sector. In 2004 the capital and financial accounts recorded a smallsurplus of US$92m, the first since 1996. This mainly reflected the lower levels ofexternal loan repayments in 2004, in addition to a sharp expansion in netportfolio investment, which reached US$1.3bn.

Foreign direct investment (FDI) inflows averaged around US$2bn annually inthe boom years of the early 1990s. However, the 1997-98 crisis led to a sharpincrease in inflows as investors sought to take advantage of cheap assets and alow cost base following the baht depreciation. FDI inflows peaked at US$7.3bnin 1998 and stayed strong at US$6.1bn in 1999, according to IMF data, whichinclude reinvestment of earnings by existing foreign-owned firms in Thailand.However, after averaging around US$3.6bn a year in 2000-01, FDI inflowsplummeted to US$950m in 2002. This was partly a reflection of concerns thatthe new administration under Thaksin would be more nationalist and inclined

Current-account surpluses arerestored

Net capital inflows return tosurplus in 2004

FDI flows have fluctuated inrecent years

The level of workers�remittances is uncertain

Thailand 47


to protect domestic interests, but was also part of a more general move byforeign investors to invest in China rather than South-east Asia. In 2003 FDIinflows rose to nearly US$2bn, but much of the increase was accounted for bya couple of large projects�there was no significant increase in investor interestin the country. FDI inflows fell back again in 2004 to just US$1bn, despiteefforts by the Board of Investment to improve the investment climate.

According to provisional BOT data, total foreign debt stood at US$51.1bn(equivalent to 35.4% of GDP) at end-2004, down from US$79.7bn at end-2000and a peak of US$109.3bn at end-1997. The fall in total debt has beenaccompanied by a change in the debt profile. In 1997, 78% of total external debtwas held by the private sector and 34% was short-term debt (that is, with amaturity of less than one year) debt. By the end of 2002 the private sector, as aresult of large repayments and little in the way of new borrowing, had reducedits share of total debt to 60.4%, and short-term debt accounted for only 20% oftotal debt. Although the stock of private-sector external debt dropped further inabsolute terms in 2003 to US$34.8bn, from US$36.2bn in 2002, its share of totalexternal debt jumped to 67%. In 2004 private-sector debt picked up in absoluteterms, and accounted for 70% of total external debt in that year. The drop inpublic-sector debt to US$15.1bn by end-2004, from a peak of US$36.2bn in 1999,reflected the sharp drop in the public sector�s stock of external debt in line withthe early repayment of multilateral and bilateral loans extended at the time ofthe 1997 currency crisis. Repayments to the IMF and a number of central banks,which lent US$14.3bn to Thailand between 1997 and 2000, began in the fourthquarter of 2000. By July 2003 the government had successfully managed tocomplete repayment.

Foreign reserves and the exchange rate

At the end of 1996 reserves excluding gold stood at US$37.7bn, but aboutone-third of these reserves were exhausted during the government�s un-successful defence of the baht in foreign-exchange markets in 1997. The BOThad also committed around US$20bn in forward and swap obligations indefence of the baht, and the winding down of these commitments by US$11bnin 1998 exerted further downward pressure on reserves. Reserves stabilised ataround US$32bn-35bn in 1999-2001, as heavy debt-servicing obligations andbouts of baht weakness and volatility prevented a more significant increase.Strong portfolio inflows and speculative investment in the baht, attracted bythe positive interest-rate differential with the US, boosted the level of reservesto US$39bn in 2002. Reserves have since continued to rise, despite the earlyrepayment of the external debt incurred in 1997-2000, reaching US$49.8bn byend-2004.

Until the baht went into free-fall in July 1997, it was regarded as a strong andstable currency. Although this was partly the result of sound macroeconomicmanagement, it was also because the peg to a basket of currencies dominatedby the US dollar limited fluctuations. Before the 1997 currency collapse, thegovernment had only once devalued the baht significantly�by 14.8% againstthe US dollar in 1984. On July 2nd 1997 the Thai authorities were forced to

Total external debt continuesto fall

International reserves returnto pre-crisis levels

Currency volatility increasesfrom 1997

48 Thailand


abandon the currency peg and allow the baht to float freely in response toexcessive selling of the currency in financial markets. The baht eventuallyreached a low of Bt56:US$1 in early 1998, representing a fall of more than 50%from its pre-float level. It subsequently appreciated steadily on the back ofrising reserves, a healthy current-account position and multilateral financing,to reach a high of Bt37:US$1 at the beginning of January 2000. During 2000-01the currency came under pressure again, and dropped to an annual average ofBt44.4:US$1 in 2001. Factors depressing sentiment towards the baht includedthe depreciation of regional currencies, rising global oil prices, politicaluncertainty in the run-up to the January 2001 election, a weak stockmarketand high foreign debt repayment obligations.

Since 2001 the baht has strengthened against the US dollar, primarily owing tothe general weakness of the dollar. In 2004 the baht averaged Bt40.2:US$1,compared with Bt44.4:US$1 in 2001. Against other major trading currencies,however, the baht has weakened. Against the Japanese yen the bahtdepreciated by 4.1% in 2003 and 3.7% in 2004, and against the euro it fell by13.5% in 2003 and 6.2% in 2004. The monetary authorities, however, have beenconcerned by the strengthening of the baht against the currencies of its regionalcompetitors, particularly those that are pegged to the US dollar, such as theMalaysian ringgit and the Chinese renminbi.

Regional overview

Membership of organisations

The Association of South-East Asian Nations was established in 1967. The fiveoriginal members were Indonesia, Malaysia, the Philippines, Singapore andThailand. Brunei joined in 1984, as did Vietnam in 1995, Laos and Myanmar in1997 and, most recently, Cambodia in 1999.

ASEAN summit meetings, which bring together the heads of government ofmember states, must now be held every three years. The most recent was inIndonesia in 2003. Informal summits of heads of governments are also held. Inaddition, the foreign and economic affairs ministers of member countries meetannually. Joint meetings of foreign and economic affairs ministers are held beforeeach ASEAN summit. There is also a standing committee (consisting of themembers� accredited ambassadors to the host country), which usually meetsevery two months. There is a permanent secretariat, based in the Indonesiancapital, Jakarta, and a number of committees.

The organisation started with some grand objectives, but has failed to deliver inmost areas, with the possible exception of tariff reform. Early hopes thatASEAN could engineer a regional economic development strategy�withparticular countries concentrating on particular industries�were soon dashed.In 1977 the Basic Agreement on the Establishment of ASEAN Preferential Tariffswas concluded, but a decade later only about 5% of trade between memberswas covered by this system. (Members had been permitted to exclude

Association of South-EastAsian Nations (ASEAN)

The baht strengthens against aweak US dollar

Thailand 49


�sensitive� sectors, a let-out clause that a subsequent agreement in 1987 onlyslightly curtailed.)

Plans for a proper ASEAN Free-Trade Area (AFTA) were unveiled in 1992, withthe aim of achieving this by 2008. A common effective preferential tariff (CEPT)scheme was applied in 1993, providing for the gradual reduction of tariffs on intra-ASEAN trade in certain goods over a number of years. Again, however, memberstates could exclude sensitive items, limiting progress. A new AFTA programme,covering a wider spread of products, was launched in 1994. During the mid-1990sthe timescale for implementing the programme was steadily tightened, with theaim of reducing tariffs on most goods to below 5% by 2000. A limited AFTA,between the original six members of ASEAN and involving a reduction of tariffson intra-ASEAN trade to between 0% and 5%, came into operation on January 1st2002. (Countries joining recently have been allowed more time.) The momentumfor change has been maintained in recent years. An ASEAN finance ministers�meeting in September 2004 agreed to abolish tariffs in 11 industrial sectorsby 2012.

Before the recent acceleration in tariff reform, ASEAN�s slow progress towardsAFTA had encouraged some of its members, notably Singapore, to opt insteadfor bilateral trade pacts. But ASEAN�s hopes of further multilateral deals havenot been extinguished. In December 2004 ASEAN and China signed a majortrade deal, which aims to eliminate most tariffs on intra-regional trade by 2010(2015 for the less developed members of ASEAN). Tariffs will not gocompletely�countries will be able to designate a number of sectors as sensitive,and the greatest liberalisation is therefore likely to occur in areas where Chineseand ASEAN trade is complementary. Tariff reductions in agricultural trade havealready started.

The 1997-98 regional financial crisis exposed ASEAN�s failings in other areas ina brutal fashion. The organisation was unable to stop the regional currencydevaluations or alleviate the subsequent economic hardship. A Statement onBold Measures, released at end-1998, was exactly the opposite of what the titleimplied. Unfolding events in Indonesia then moved the focus on to theorganisation�s security plans. ASEAN members� commitment to the principle ofnon-interference in the internal affairs of other member countries complicatedthe response to the crisis in East Timor. (Some members did eventuallyparticipate in the multinational force that intervened in East Timor, but notunder ASEAN auspices.)

The organisation�s political hopes could be severely tested in the next fewyears. Changing governments in member countries could undermine anyremaining pretence of political consensus in the region. On the security front,the ASEAN Regional Forums (ARFs, which bring together the ASEAN ministersof foreign affairs with those of other countries, notably China) are likely toremain little more than talking shops, with negligible impact on changinggeopolitical trends.

APEC started life as a forum for informal discussion between six members ofthe Association of South-East Asian Nations (ASEAN), Brunei, Indonesia,Malaysia, the Philippines, Thailand and Singapore, and their six dialogue

Asia-Pacific EconomicCo-operation (APEC) forum

50 Thailand


partners in the Pacific, Australia, Canada, Japan, New Zealand, South Korea andthe US. In 1991 China, Hong Kong and Taiwan became members, followed byMexico and Papua New Guinea in 1993, and Chile in 1994. Peru, Russia andVietnam joined in 1998. APEC describes itself as �the primary vehicle forpromoting open trade and practical economic co-operation� in the region,with the goal of advancing �Asia-Pacific economic dynamism and sense ofcommunity�.

APEC has had a permanent secretariat since 1992, and also runs fourpermanent committees�on budget and managerial issues, on trade andinvestment, on economic trends generally, and on economic and technicalco-operation. In addition, there are 11 working groups�on agricultural technicalco-operation, energy, fisheries, human resources, industrial science and tech-nology, marine resource co-operation, small and medium-sized enterprises,telecommunications, tourism, trade promotion and transport. There is also anAPEC business advisory council (ABAC), which includes up to three seniorprivate-sector representatives from each member country. APEC as a whole hasits headquarters in Singapore, while ABAC is based in the Philippines. APEC�smain business is done at annual meetings of member states� ministers offoreign affairs and economic affairs, which are followed by informal gatheringsof members� heads of state. Every other ministerial meeting is held in a South-east Asian country. The chairmanship of APEC rotates on a yearly basis.

During the 1990s APEC�s star first waxed brighter and then started to wane. Thehigh point was probably reached in 1994, when members agreed a timetablefor the liberalisation of trade across the region: the ambitious aim was toeliminate all trade barriers by 2020, and then to extend reciprocal concessionsto non-members. In 1995 and 1996 APEC debated how best to achieve thistarget, but discussions in 1997 and 1998 were driven off course by the regionalfinancial crisis. APEC�s response to the crisis�generally worded exhortations tomember states to develop financial and capital markets, and so on�was farfrom convincing and signalled the inherent weaknesses of the organisation.Subsequent meetings also provided other distractions from the trade liberali-sation theme: East Timor in 1999, information technology in 2000 and security(following the September 11th terrorist attacks on the US) in 2001. Discussionreturned to trade relations in 2002, but was only very general in nature. The2003 meeting in the Thai capital, Bangkok, made little further progress,concluding with broad commitments to multilateral trade and investmentliberalisation and to improving regional security arrangements. These commit-ments were reiterated by the November 2004 meeting, held in the Chileancapital, Santiago. The meeting�s communiqué also acknowledged the growingnumber of regional and bilateral trading arrangements (without condemning orcommending them), and touched in the most general way on contemporaryproblems such as maritime security and HIV/AIDS. The unfortunate conclusionto be drawn from recent meetings is that APEC has in effect gone back to itsroots and become an informal talking shop, giving up all aspirations to be aserious regional reformer.

Thailand 51


Appendices

Sources of information

Bangkok Post (daily)

The Nation (daily), Bangkok

Bangkok Post, �Economic Review�

Bank of Thailand, Annual Economic Report, Bangkok

Bank of Thailand, Economic and Financial Statistics (monthly), Bangkok

Bank of Thailand, Time Series Database, (online)

Asian Development Bank

IMF, Direction of Trade Statistics

IMF, International Financial Statistics

International Institute for Strategic Studies, The Military Balance

World Bank, Global Development Finance

US Energy Information Administration

Pasuk Phongpaichit and Chris Baker, Thaksin: The Business of Politics inThailand, Silkworm Books, Bangkok, 2003

Bank of Thailand: www.bot.or.th

National Economic and Social Development Board: www.nesdb.go.th

Royal Thai Government: www.thaigov.go.th

Stock Exchange of Thailand: www.set.or.th

Board of Investment: www.boi.gor.th

National Statistical Office: www.nso.go.th

Tourism Authority of Thailand: www.tat.or.th

National and internationalstatistical sources

Select bibliography andwebsites

52 Thailand


Reference tables

Population(m; % change year on year in brackets)

2000 2001 2002 2003 2004a

Total (m) 61.88 62.31 62.80 63.08 63.35Population growth rate (0.40) (0.70) (0.80) (0.45) (0.43)Population by ageUnder 15 years 15.95 15.88 15.78 15.69 15.75 % of total population 25.78 25.49 25.13 24.87 24.86Over 15 years 45.93 46.43 47.02 47.39 47.60

a Preliminary.


Labour force(m unless otherwise indicated)

2000 2001 2002 2003 2004a

Employed 31.29 32.10 33.06 33.84 34.73Agricultural 13.83 13.61 14.04 13.88 13.63Non-agricultural 17.46 18.49 19.02 19.96 21.09Unemployed 1.19 1.12 0.82 0.75 0.74Seasonal inactive labour force 0.74 0.59 0.38 0.31 0.25Total labour force 33.22 33.81 34.26 34.90 35.72Unemployment rateb 3.6 3.3 2.4 2.2 2.1

a Preliminary. b Percentage of labour force.


Transport statistics1998 1999 2000 2001 2002

RoadVehicle registrations at year-end (no.) 759,446 750,544 794,737 825,629 846,566 Cars 1,974 2,124 2,111 2,281 2,651 Motorcycles 12,464 13,245 13,817 15,236 16,581 Vans 2,779 3,098 3,209 3,341 3,544 Microbuses 555 527 554 583 608 Buses 96,641 95,801 100,920 107,622 111,542 Trucks 621,474 613,343 652,520 673,599 689,512 Rural buses 23,243 22,066 21,267 22,648 21,838 Others 316 340 339 319 290Roads (km) 54,390 55,641 57,403 59,751 61,608 Concrete & asphalt 52,969 54,451 56,559 58,967 61,125 Unpaved 1,421 1,190 844 784 483

Domestic freight traffic (�000 tonnes)By road 384,421 392,244 397,976 400,242 459,919By train 8,364 9,264 9,171 8,776 8,893By air 46 56 57 66 56Domestic passenger traffic (�000)By bus 1,171,254 1,079,972 1,039,948 949,076 932,540By train 59,532 54,439 53,973 56,749 56,920By air 6,501 6,468 7,014 7,267 6,422

Source: Ministry of Transport.

Thailand 53


Central government finances(Bt bn)

2000 2001 2002 2003 2004a

RevenueTaxation 669.6 694.5 785.6 902.6 789.4 Personal income tax 90.5 97.0 104.9 116.1 100.0 Corporate income tax 142.1 140.1 162.4 208.2 215.5 Import duties 85.1 91.4 98.1 109.6 74.6 Value-added tax 154.2 126.8 147.2 150.5 125.9 Excise taxes 165.3 187.7 219.4 258.2 210.3Contribution from government enterprises 43.9 52.2 56.1 54.5 47.6Total incl other 746.8 775.8 876.9 1,012.6 868.3ExpenditureEconomic services 191.0 201.5 204.5 199.7 177.3Social services 382.8 409.0 424.5 469.6 338.4Defence 71.3 75.4 76.7 77.0 62.7General administration & services 97.6 101.4 111.3 114.7 104.2Total incl other 853.1 908.6 955.5 996.2 807.5Current expenditure 659.7 717.7 751.8 826.5 643.6Capital expenditure 193.5 190.9 203.7 169.7 163.9

a January-September.

Source: Bank of Thailand, Monthly Bulletin.

Interest rates(%; period averages)

2000 2001 2002 2003 2004Lending interest rate 7.8 7.3 6.9 5.9 6.5Deposit interest rate 3.3 2.5 2.0 1.3 2.7Money-market interest rate 1.9 2.0 1.8 1.3 2.7


Money supply(Bt bn unless otherwise indicated; end-period)

2000 2001 2002 2003 2004Money (M1) 525.7 579.4 663.5 766.8 859.0 % change, year on year -8.6 10.2 14.5 15.6 12.0Quasi-money 4,507.0 4,664.2 4,715.4 4,875.0 5,089.4Money (M2) 5,032.7 5,243.7 5,378.9 5,641.8 5,948.4 % change, year on year 3.7 4.2 2.6 4.9 5.4


54 Thailand


Gross domestic product(market prices)

2000 2001 2002 2003 2004Total (US$ bn)At current prices 122.7 115.5 126.8 143.0 163.5

Total (Bt bn)At current prices 4,922.7 5,133.5 5,446.0 5,930.4 6,576.0At constant (1988) prices 3,008.4 3,073.6 3,237.6 3,460.0 3,669.4 % change, year on year 4.8 2.2 5.3 6.9 6.1Per head (Bt)At current prices 78,864 81,614 85,764 92,662 101,875At constant (1988) prices 48,195 48,865 50,985 54,063 56,846 % change, year on year 3.7 1.4 4.3 6.0 5.1

Source: National Economic & Social Development Board.

Nominal gross domestic product by expenditure(Bt bn at current prices; % of total in brackets)

2000 2001 2002 2003 2004Private consumption 2,762.9 2,941.0 3,113.5 3,360.6 3,662.2

(56.1) (57.3) (57.2) (56.7) (55.7)

Government consumption 557.8 581.1 603.7 630.4 716.2(11.3) (11.3) (11.1) (10.6) (10.9)

Gross fixed investment 1,081.4 1,181.3 1,243.1 1,425.3 1,697.1(22.0) (23.0) (22.8) (24.0) (25.8)

Stockbuilding 42.7 55.8 56.6 57.9 86.7(0.9) (1.1) (1.0) (1.0) (1.3)

Exports of goods & services 3,287.3 3,380.8 3,499.0 3,886.6 4,603.5(66.8) (65.9) (64.2) (65.5) (70.0)

Imports of goods & services 2,862.3 3,047.6 3,134.3 3,485.3 4,269.9(58.1) (59.4) (57.6) (58.8) (64.9)

GDP 4,922.7 5,133.5 5,446.0 5,930.4 6,576.0


Thailand 55


Real gross domestic product by expenditure(Bt bn at constant 1988 prices; % change year on year in brackets)

2000 2001 2002 2003 2004Private consumption 1,623.7 1,690.6 1,779.9 1,894.4 2,001.4

(5.2) (4.1) (5.3) (6.4) (5.6)

Government consumption 277.1 284.0 289.1 294.8 307.0(2.3) (2.5) (1.8) (2.0) (4.1)

Gross fixed investment 597.4 604.2 643.8 720.2 823.6(5.5) (1.1) (6.5) (11.9) (14.4)

Stockbuilding 25.6 35.8 36.4 45.4 65.1(1.1)a (0.3)a (0.0)a (0.3)a (0.6)a

Exports of goods & services 1,947.1 1,865.1 2,088.7 2,235.6 2,409.5(17.5) (-4.2) (12.0) (7.0) (7.8)

Imports of goods & services 1,497.7 1,415.4 1,609.1 1,732.3 1,942.7(27.1) (-5.5) (13.7) (7.7) (12.1)

GDP 3,008.4 3,073.6 3,237.6 3,460.0 3,669.4(4.8) (2.2) (5.3) (6.9) (6.1)

a Change as a percentage of GDP in the previous year.


Gross domestic product by sector(Bt bn; at constant 1988 prices)

2000 2001 2002 2003 2004 a

Agriculture 310.4 318.6 323.6 352.2 336.5Mining & quarrying 64.3 64.7 71.8 76.7 80.7

Manufacturing 1,095.8 1,111.3 1,188.0 1,311.4 1420.1Construction 76.7 76.6 80.6 83.3 94.3

Electricity, gas & water supply 97.5 103.8 110.1 115.2 121.8Transport & communications 289.9 309.6 330.7 343.2 370.0Wholesale & retail trade 475.6 470.0 478.8 495.7 510.3

Financial intermediation 84.2 85.8 96.2 111.8 127.6Real-estate, renting & business activities 120.4 122.4 128.3 134.8 150.0

Public administration & defence 95.3 98.8 106.8 110.9 111.1Other servicesb 299.7 310.3 322.7 325.2 348.1

GDP 3,009.8 3,071.9 3,237.6 3,460.4 3,670.5

a Preliminary. b Includes hotels and restaurants, education, health, and other community, social and personal service activities.

Source: Bank of Thailand, Economic Statistics.

Prices and earnings(% change, year on year)

2000 2001 2002 2003 2004Consumer prices (av) 1.5 1.7 0.6 1.8 2.8Average nominal wages 1.0 1.0 2.0 2.0 3.3Average real wages -0.5 -0.7 1.4 0.2 0.5

Unit labour costs -4.5 -7.1 11.5 7.2 7.6

Sources: Bank of Thailand, Time Series Databank.

56 Thailand


Crop production(�000 tonnes)

2000 2001 2002 2003 2004a

Paddy rice 24,948 27,105 25,128 27,293 25,214Rubber 2,378 2,561 2,632 2,861 3,005

Maize 4,492 4,516 4,189 4,081 4,291Cassava 19,094 18,895 15,485 23,849 19,251

Sugarcane 45,892 50,953 61,736 81,751 69,870Jute & kenaf 28 56 41 36 31

Mung bean 214 249 227 255 312Soybean 313 278 262 250 233Coconuts 1,400 1,396 1,418 1,432 1,499

Tobacco leaves 74 64 78 66 68

a Preliminary estimates.

Source: Bank of Thailand, Time Series Databank.

Mineral production(�000 tonnes unless otherwise indicated)

2000 2001 2002 2003 2004Tin concentrate 2.4 2.4 1.3 1.0 0.7Lead ore 24.8 0.8 6.5 � �

Iron ore 0.0 0.1 570.1 9.2 135.6Manganese ore 0.2 0.1 0 0.1 4.6

Zinc ore 164.1 88.7 151.6 148.3 199.2Gypsum (m tonnes) 5.8 6.5 6.3 1.9 8.0Lignite (m tonnes) 17.7 19.6 19.5 4.3 19.8

Natural gas (bn cu ft) 709.0 692.6 722.2 752.2 788.6Condensate (m barrels) 19.1 18.9 19.6 22.9 25.0

Crude oil (m barrels) 20.1 22.0 27.2 35.5 31.1

Source: Bank of Thailand, Quarterly Bulletin.

Manufacturing production2000 2001 2002 2003 2004

Passenger cars (�000) 97.1 155.9 169.3 251.7 299.0

Commercial vehicles (�000) 314.6 303.3 415.6 490.4 628.6Motorcycles (�000) 940.0 1,051.0 1,496.0 1,908.0 2,279.0Integrated circuits (m) 7,070.0 4,400.0 5,741.0 8,223.0 9,848.0

Petroleum products (bn litres) 41.1 42.0 42.7 44.6 48.3Spinning (�000 tonnes) 608.0 677.9 735.5 783.2 845.8

Synthetic fibres (�000 tonnes) 807.4 806.4 868.7 830.7 893.9Overall index (2000=100) 99.9 102.7 111.8 127.2 141.3


Thailand 57


Construction statistics2000 2001 2002 2003 2004

Construction approvals (m sq metres) 7.6 9.0 13.9 18.5 22.7 Bangkok 5.4 4.1 5.5 7.2 8.1

Construction materials soldCement (m tonnes) 18.0 19.0 23.0 24.2 27.2Galvanised iron sheets (�000 tonnes) 273.5 308.4 352.0 345.7 342.2Steel bars (�000 tonnes) 1,417 1,417 1,760 2,041 2,191

Sources: Bank of Thailand, Time Series Databank.

Banking statistics(Bt bn; end-period)

2000 2001 2002 2003 2004Assets of commercial banks 6,640.2 6,616.0 6,900.9 7,237.8 7,638.7 Claims on business & household sector 4,211.6 3,774.7 4,404.7 4,705.3 4,958.4 Claims on government 306.3 318.0 398.7 294.4 314.8 Foreign assets 720.1 748.4 633.6 617.8 574.3

Liabilities of commercial banks 6,640.2 6,616.0 6,900.9 7,237.8 7,638.7 Total deposits of businesses & households 4,491.1 4,667.0 4,753.2 4,910.5 5,104.5 Foreign liabilities 565.5 461.6 413.2 325.4 394.9 Capital accounts 716.7 644.0 882.8 984.8 1,011.9

Source: Bank of Thailand, Economic and Financial Statistics.

Stockmarket indicators2000 2001 2002 2003 2004

Companies quoted (no.) 381 382 391 405 439

Total capitalisation at market value (Bt bn) 1,279 1,607 1,986 4,790 4,496SETa index (year-end) 269.2 303.9 356.5 772.2 668.1a Stock Exchange of Thailand.

Source: Bank of Thailand, Annual Report.

Principal exports and imports(% of total)

2000 2001 2002 2003 2004Principal exportsMachinery & mechanical appliance 14.7 14.5 13.5 13.2 13.4Electrical apparatus for circuits 14.0 12.2 13.1 13.2 13.0Computers & parts 12.3 11.9 10.7 10.0 9.3Electrical appliances 7.7 7.6 8.3 8.0 8.7Principal importsFuel & lubricants 11.0 11.5 11.5 11.7 13.9Electrical machinery 11.7 12.4 12.4 11.3 10.7Non-electrical machinery 9.1 9.9 10.1 10.6 10.2Base metals 6.8 6.4 7.2 7.7 9.7


58 Thailand


Main trading partners(% of total)

2000 2001 2002 2003 2004Exports fob to:US 21.3 20.4 19.9 17.0 15.9Japan 14.7 15.3 14.7 14.2 13.9Singapore 8.7 8.1 8.2 7.3 7.2China 4.1 4.4 5.2 7.1 7.3

Imports cif from:Japan 24.8 22.4 23.0 24.1 23.5US 11.8 11.6 9.6 9.5 7.6China 5.5 6.0 7.6 8.0 8.5Malaysia 5.4 5.0 5.6 6.0 5.8


Balance of payments, IMF series(US$ m)

2000 2001 2002 2003 2004Goods: exports fob 67,894 63,083 66,089 78,084 96,107Goods: imports fob -56,194 -54,538 -57,009 -66,909 -84,983

Trade balance 11,700 8,543 9,080 11,175 11,124Services: credit 13,869 13,024 15,391 15,799 18,607Services: debit -15,460 -14,611 -16,720 -18,169 -22,575

Income: credit 4,235 3,834 3,356 3,016 3,120Income: debit -5,616 -5,200 -4,696 -4,808 -5,144

Current transfers: credit 952 990 977 1,325 2,479Current transfers: debit -366 -389 -375 -385 -332

Current-account balance 9,314 6,191 7,015 7,953 7,281Direct investment in Thailand 3,366 3,892 953 1,950 1,056Direct investment abroad 23 -344 -105 -488 -600

Inward portfolio investment(incl bonds) -546 -525 -694 851 239

Outward portfolio investment -159 -361 -913 -940 1,087Other investment assets -2,203 577 4,135 -410 -428

Other investment liabilities -10,914 -6,897 -6,262 -8,590 -1,262Financial balance -10,433 -3,658 -2,886 -7,627 92Net errors & omissions -684 -259 1,409 192 -1,903Overall balance -1,806 2,275 5,536 517 5,710Financing (� indicates inflow)Movement of reserves 2,120 -380 -5,874 -3,233 -7,683Use of IMF credit & loans 0 0 0 0 0

Source: International Monetary Fund, International Financial Statistics.

Thailand 59


External debt, World Bank series(US$ m unless otherwise indicated; debt stocks as at year-end)

1999 2000 2001 2002 2003Public medium- & long-term 31,300 29,500 26,200 22,600 17,800Private medium- & long-term 38,600 32,300 26,100 24,500 23,100

Total medium- & long-term debt 69,900 61,800 52,300 47,100 40,900 Official creditors 21,800 20,800 19,100 16,300 13,200 Bilateral 16,400 15,500 13,600 12,900 10,200 Multilateral 5,430 5,330 5,430 3,450 3,020 Private creditors 48,053 40,947 33,200 30,840 27,728

Short-term debt 23,400 14,900 13,200 11,900 10,900 Interest arrears 0 0 0 0 0Use of IMF credit 3,430 3,060 1,680 391 0

Total external debt 96,730 79,760 67,180 59,391 51,800Principal repayments 9,440 9,138 16,989 17,160 13,003

Interest payments 6,789 4,853 3,306 2,546 2,107 Short-term debt 1,010 905 562 419 382Total debt service 16,229 13,991 20,295 19,706 15,110

Ratios (%)Total external debt/GDP 78.9 65.0 58.1 46.8 36.2Debt-service ratio, paida 21.4 16.0 25.0 22.9 15.1

Note. Long-term debt is defined as having original maturity of more than one year.

a Debt service (paid) as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Foreign reserves(US$ m; end-period)

2000 2001 2002 2003 2004Total reserves incl gold 32,661 33,041 38,915 42,148 49,831Total international reserves

excl gold 32,016 32,355 38,046 41,077 48,664

Gold, national valuation 645 686 869 1,071 1,167


Exchange rates(Bt per unit of currency unless otherwise indicated; annual averages)

2000 2001 2002 2003 2004US$ 40.1 44.4 43.0 41.5 40.2

� 37.1 39.8 40.6 47.0 50.0S$ 23.3 24.8 24.0 23.8 23.8

¥ 0.372 0.366 0.343 0.358 0.372

Source: IMF, International Financial Statistics.

Editors: Caroline Bain (editor); Gerard Walsh (consulting editor)Editorial closing date: May 25th 2005

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

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